Federal Reserve Board Chairwoman Janet Yellen has been sounding hawkish of late, and the jobs report backs up her stance.
The blowout October jobs report gives the Federal Reserve the green light to raise interest rates next month, which would be the first increase in nine years.
The U.S. added 271,000 jobs in October, topping the MarketWatch-compiled economist consensus for 180,000 jobs.
“The report strengthens our conviction the Fed will hike in December,” said Dana Saporta, a U.S. economist at Credit Suisse.
Saporta said it was too strong to say that a December rate hike was a done deal but said the October report was so strong, that the central bank could justify an increase even if the November number comes in on the weak side.
Carl Tannenbaum, chief U.S. economist at Northern Trust in Chicago, agreed that the Fed would move in December.
“The figures solidify the case for an interest rate hike in December,” he said.
Tannenbaum pointed to the 2.5% annual gain in hourly wages in October, the biggest gain since the end of the recession.
This is a “resounding response” to doves on the Fed who doubted that low unemployment would lead to higher inflation, a relationship known as the Phillips Curve. Fed Gov. Lael Brainard and Daniel Tarullo had recently raised doubts about the theory.
In an interview with CNBC after the data came out, Chicago Fed President Charles Evans called the October job gain “a good number” and said that a rate hike was a live option at the December meeting.
Evans has been one of the strongest doves at the U.S. central bank, urging his colleagues to hold off hiking rates until 2016.
Earlier this week, Fed Chairwoman Janet Yellen and two of her closest colleagues on the U.S. central bank and hinted that they were prepared to hike rates at the Fed’s two-day meeting on Dec. 15-16.
Yellen told the House Financial Services Committee that the economy was “performing well” and a December rate hike was a “live possibility.”
Saporta of Credit Suisse said the Fed wants to move rates up at a gradual pace but said it may have trouble convincing the market.
“The Fed’s success with communication has been shaky of late,” she said.
In his interview, Evans said the entire path of rate increases will determine whether the central bank is accommodative or restrictive.
“I think we need to have communications which indicate the path is going to be gradual,” he said.
In a recent speech, Evans said he thought the fed funds rate could still be under 1% at the end of 2016.
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