Will Disappointing Jobs Data Delay Interest Rate Hike?

Fed may now delay acting until 2016

LONDON, Oct. 6, 2015 /PRNewswire/ — Today’s US non farm employment change data missed analyst’s expectations for the third consecutive month, with a reading of 142,000, which is significantly below the forecast of 202,000.

At September’s FOMC meeting, policymakers decided to delay raising interest rates, citing continuing global uncertainty around commodity prices and China’s economic slowdown. Today’s weaker than expected job creation data is likely to increase the hesitancy of Federal Reserve members to increase rates before it is absolutely necessary.

“Generally speaking, the US economy has been demonstrating strong signs of recovery in recent times, especially in the labour market. This has caused many market commentators endorsing a hike in interest rates, believing economic conditions are right to do so,” explains Jarratt Davis, Head of FX at Smile Global Management.

“That’s why today’s data is a surprise, and it will likely mean that the Federal Reserve will now push back a rate hike until early 2016 – although the chances are that they will still be the first major central bank to make such a move.”

Inflation Targets, oil and commodities also in the mix

today's data is a surprise, and it will likely mean that the Federal Reserve will now push back a rate hike until early 2016

The timing of an interest rate hike is also dependent on US inflation targets being met, along with how falling oil and commodity prices affect the global economy.

“The markets have been faced with a great deal of uncertainty of late, which means investor confidence can be classed as hesitant at this present time. This has been driven by the slowdown in China, along with the falling price of oil and commodities. With such uncertain global forces at play, it’s understandable that the Federal Reserve will not want to hike their interest rates too early,” adds Jarratt Davis.

“Over the coming months, traders should keep track of inflation data from the US, while tracking the ongoing performance of the Chinese economy, which has influence to drag on other major economies across the globe.

“Having said that, there’s a firm expectation that the Federal Reserve will raise interest rates by at least six months into 2016. Despite poor readings of late, the US is creating approximately 200,000 jobs per month over the past two years.”

 

For further market commentary from Jarratt Davis, please email [email protected]