Also, December Hike “Isn’t a Sure Thing”
After GOP presidential candidate Donald Trump attacked the Federal Reserve for having political motivation in the timing of its interest rate hike, all eyes turned towards November. Just days before the election, the Federal Open Market Committee is set to contemplate a rate hike.
The uncertainty caused by that meeting has injected turmoil into markets.
However Fed guru Jon Hilsenrath thinks a November rate hike is off the table. He cemented that position after the September jobs report showed only 156,000 new jobs added to the economy. (Source: “Hilsenrath: Jobs Data Ensures No Fed Rate Increase in November,” The Wall Street Journal, October 7, 2016.)
“The subdued September jobs report ensures the Federal Reserve won’t be raising short-term interest rates at its November policy meeting,” Hilsenrath writes. “[And it] creates a new thread of uncertainty about its action in mid-December.” (Ibid.)
In addition to the lackluster additions, there was a surge of people re-entering the workforce. The unemployment actually ticked up to five percent from its previous level of 4.9%. This change was also reflected in the labor force participation rate, which moved up half a point year-over-year to 62.9%.
“The growing pool of labor is also a sign the job market isn’t yet near overheating,” Hilsenrath continues. “This underscores Ms. Yellen’s plan to move slowly toward raising short-term interest rates.” (Ibid.)
With most of the new jobs being formed at the lower end of the wage scale, Hilsenrath believes the Fed will move forward cautiously. He is considered a Fed guru, not simply because of his expertise on monetary policy, but also because the Fed has previously leaked early numbers through him.
All major institutions like the Fed need close allies in the media. Hilsenrath would likely receive the Fed’s decision ahead of time so he can write the story, but there would probably be an embargo on when he can publish. Once the Fed announces it publicly, he would be free to publish a rapid-fire take.
As such, many analysts believe Hilsenrath has special insight into the Fed’s thinking. His absolutist rejection of a November rate hike is being taken as fact on Wall Street, meaning that markets could realign accordingly.