Bill Gross says a December rate rise is “100 per cent” likely, after US jobs data exceed all predictions – here’s what other analysts think, too
"Bond king" Bill Gross thinks a US December rate rise has just become practically certain, after US jobs data beat everyone's predictions.
In October, the US added 271,000 jobs to its economy, way ahead of the 180,000 predicted and the highest monthly figure for the year so far. Meanwhile, unemployment fell to five per cent, from 5.1 per cent the month before.
This has raised the likelihood the Federal Reserve will go ahead with a rise next month, having kept rates at their near-zero levels since 2006.
In an interview with Bloomberg, Gross said: “I think it's, like I say, 100 per cent that they go in December and then try and tamp it down with milk, gradual language that will keep the dollar from strengthening even further.”
After the figures came out, the dollar hit a seven-month high, jumping 1.16 per cent against the pound, to 66.51p.
But by no means is Gross the only one to take a newly optimistic view. Here's what others have said…
Cebr
Saying the US economy looked like it had “turned a corner” in the third quarter, Cebr described a December rate rise as “all but certain”.
“Jobs data and GDP figures during Q3 were underwhelming compared to the post-crisis trajectory so far,” they said.
The Federal Reserve’s last set of minutes dropped the gloomy tone on the global economic situation and signalled a likely rate rise in December unless data before that are particularly bad. Fed chair Janet Yellen stated some months ago that the labour market was almost back to normal and reiterated as recently as Wednesday that a December rise was a “live possibility”. After today’s numbers, the likelihood has risen further.
Barclays
After moving its prediction of a rise to March at the end of August, the bank has taken a optimistic view in light of today's figures.
“When we moved our rate hike assumption to March 2016, we assumed that the volatility in financial markets would be longer lasting and the Fed would have trouble resolving their differences about the viability of rate hikes before year-end,” it told the FT, adding that the October FOMC minutes revealed a Hawkish tone, suggesting the committee saw downside risks from global developments as having diminished.
This change in communication, the faster dissipation in uncertainty, and a very solid payroll report necessitate a change in our call to December. We now forecast a federal funds range of 25-50bp in December, up from the current 0-25bp.
Traders
According to Bloomberg's measure of sentiment among futures traders, a December rise looks “increasingly certain”.
Traders see a 70 percent chance that the Fed will raise its benchmark rate from near zero at its next meeting, up from a 56 percent probability before Friday’s release of stronger-than-forecast U.S. labour data. The calculation assumes the effective fed funds rate averages 0.375 percent after the first hike.
The Share Centre
Helal Miah, investment research analyst at The Share Centre, said:
These numbers are now likely to heavily influence the Federal Reserve at their December meeting when they decide whether to raise interest rates for the first time since the financial crisis.
As a result, the US dollar has made material gains against other major currencies, up one per cent against both the Euro and sterling.