Investing.com – Although the September employment report disappointed markets with less-than-expected job creation and a rising unemployment rate, odds that the Federal Reserve (Fed) would hike interest rates in December increased on Friday.
The U.S. economy “only” managed to create 156,000 jobs during the month of September, missing estimates for 175,000, while the unemployment rate unexpectedly ticked up to 5.0% from 4.9% when forecasts were looking for no change.
However, the nonfarm payrolls still settled above 150,000, level that the Fed feels is consistent with solid growth, with upward revisions to August’s reading.
Furthermore, the 0.1% increase in the jobless rate was accompanied by a one-tenth gain in the participation rate, while wages continued to be on the rise along with a tick up in the average hours worked.
The overall increase in incomes is generally expected to preclude a rise in inflation as workers can afford higher prices.
Markets initially reacted to the headline numbers with the dollar turning around and moving into negative territory and U.S. futures managing to post slight gains before the open.
Fed fund futures reduced the odds for a hike to come at the November meeting to just 9.3% from 13.4% prior to the release and 14.5% the day before, according to Investing.com’s Fed Rate Monitor Tool.
However, analysts agreed in bulk that policy tightening in December was still on the table.
Experts at Clearnomics noted the miss but insisted that an end-of-the-year hike was still likely. “Workers rejoined (the labor force) from the sidelines and wages picked up,” they explained.
Analysts from Danske Bank Research remarked that it was a “status quo report” with “no smoking gun”. While these experts forecast no increase for 2016, they admitted that the jobs report left the door open to a December hike.
That opinion was shared by Deutsche Bank chief U.S. economist Joseph LaVorgna: “On balance, this report keeps the Fed on track for a December rate hike.”
While markets reduced the odds for the next meeting, the probability of a move in December actually increased to 65.5%, from 63.0% prior to the report or 63.4% a day earlier.
Stay up-to-date on market expectations for future Fed policy moves by visiting: