US rate rise on the agenda as services sector storms ahead

Jake Cordell
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Janet Yellen Testifies Before House Financial Services Committee
Janet Yellen, chair of the US Federal Reserve (Source: Getty)

A pre-election rate hike in the US is back on the cards after a stellar performance from the country's services firms in September.

The sector, which makes up around two-thirds of the world's largest economy, grew at its fastest pace this year, according to the closely-watching ISM non-manufacturing purchasing managers' index (PMI).

The PMI came in at a score of 57.1, well ahead of the 50-mark which separates growth from contraction and above expectations for a reading of 53. Employers also reported bumper hiring expectations which could mean the US economy added 250,000 jobs over the month.

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Andrew Hunter at Capital Economics said the figures where in line with GDP growth at a rate of around three per cent - compared to the disappointing 1.1 per cent scored in the second quarter of the year.

The figures instantly raised the prospect of the Fed raising rates for the second time since the recession when it meets just one week before the US Presidential Election. The prospect of a rate rise in either November or the more-likely December meeting jumped from 52 per cent to 62 per cent on the news. Bond yields also rose in another sign markets are beginning to price in a hike during 2016.

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