The Fed Is Hiking Rates In December And What That Means For Markets

The all important job numbers came out Friday. US employers hired at their strongest clip so far this year and more importantly wage growth ticked up.

  • Non-farm payrolls rose a seasonally adjusted 271,000 in the month of October
  • Average hourly earnings of private-sector workers rose 9 cents to $25.20
  • This puts hourly earnings up 2.5% year over year (a substantial increase in wage growth over the previous 6 years)
  • The unemployment rate fell to 5.0% (its lowest reading since April 2008)

The strong jobs print helps solidify the likelihood of seeing the Fed move rates higher in December, Morgan Stanley’s Ted Wieseman notes (via WSJ):

“Strong report, reversing the weakness seen in the prior two months. With [Chairwoman] Janet Yellen having suggested a low bar for moving in her testimony Wednesday, this should leave little doubt the Fed is going to hike rates in December barring some sort of unexpected shock in the next month.”

The market is now pricing in a 72% likelihood that the Fed will hike next month. 

Does a 25bps hike really matter?

A lot of people have been asking me why should I care about a rate hike, it’s only 25bps. My response is that you should care, and you should care a lot.

It’s not the absolute amount that matters in the rate hike. 25 basis points is insignificant in and of itself, and it wouldn’t matter if the Fed raises 25 or 15 basis points. (Keep reading….)