Friday 10 January 2020 2:28 pm

Will cooling US jobs growth encourage Fed to cut rates?

The US economy added 145,000 jobs at the end of 2019, a figure that has raised the question of another Federal Reserve interest rate cut.

While the unemployment rate remained flat at 3.5 per cent in December, the total is lower than November’s 256,000 jobs, a number boosted by striking GM staff returning to factories.

Read more: Why the Fed ended its cycle of interest rate cuts for 2019

Economists had forecast a figure of 164,000 for the end of the year, but the December total missed that while wage growth also slowed, the US Labor Department said.

Meanwhile the government department revised down jobs growth in October and November by a combined 14,000 jobs.

Hourly earnings climbed 2.9 per cent, losing pace from November’s figure of 3.1 per cent.

Retail added the highest number of jobs at 41,000, followed by healthcare, where 28,000 people joined the sector.

Despite the expectations miss, economists sounded positive notes on the US economy.

“Although there are some signs of deceleration, this was another solid month for job and wage growth,” Lazard Asset Management’s head of US equity, Ronald Temple, said.

“The news reaffirms our expectation of continued economic growth through 2020.”

“A lack of wage growth should be good for risk,” Neil Wilson, chief market analyst at Markets.com, added.

“This is a payrolls report that only indicates further strength for equity markets. Indeed,  futures have come back to turn positive again and a push through 29,000 [points for the Dow Jones] seems on the cards still.”

Read more: US stock markets hit record highs as Middle East tensions ease

He added that the data should encourage another Federal Reserve interest rate cut.

“It just makes it even less likely the Fed will be thinking about raising rates – but then we already think the next move is to cut later this year,” Wilson said. “This reading only makes a cut more likely. If wages are not as firm as they have been it only makes the pass through to inflation less impactful and therefore allow the Fed to cut in [the first half of the year].”

However, Ulas Akincilar, head of trading at online trading platform Infinox, argued the opposite.

Saying flagging wage growth “could steadily become a brake on the wider US economy”, he said that a lack of inflation could cause the Fed to hold rates.

“With inflationary pressure now ebbing fast, the Fed has no need to hike interest rates – meaning the monetary policy doves will continue to rule the roost in the first half of 2020,” Akincilar said.

“The net effect of these two factors – slowing wage growth and a status quo on interest rates – will be to simultaneously irk President Trump and throw a bucket of cold water on the dollar. The greenback quickly responded by sliding off its earlier highs against both the euro and sterling.”

The dollar was barely up against the euro and flat against sterling following the data.

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