Experts eye December for possible Fed rate hike

By Ovunc Kutlu and Gulbin Yildirim

NEW YORK (AA) – It is most likely the Federal Reserve will raise its benchmark interest rate in December after the government released strong jobs data, experts told Anadolu Agency on Monday.

"In April and May, the employment growth slowed abruptly," said Ryan Sweet, director at Moody's Analytics. "June job growth bounced back strongly. It highlights that April and May were flukes.”

The U.S. economy recorded its weakest monthly jobs gain in the last six years in May, prompting analysts to predict that a rate hike was off the table at least until the end of the year.

But the Labor Department announced Friday that the U.S. added 287,000 jobs in June -- the largest monthly increase in the last eight months which raised the possibility of a rate hike later this year.

Steve Goldman, president of trading firm, Goldman Management, said the recent strong jobs report offsets negative data in May but a rate hike is still not certain.

"This increases the odds slightly, but still we are under the assumption a rate hike by year end may not be in the offing," he said.

The Fed pays more attention to the three-month average for employment growth, which is "still on the low side" at the moment, according to Goldman. "There is still under a 50 percent chance of a rate hike by December.”

Labor Department figures show that from April to June, the U.S. averaged 147,000 new jobs per month, which is a "decent" figure, according to Sweet.

"We really need to create about 100,000 to keep up with the growth in the working age population," he said.

Although a rate hike is still a possibility, it is "a long shot," for September, he said.

"Everything needs to go perfectly for the Fed to raise rates in September. For that, we need a couple more solid employment numbers. We also need to see inflation tick closer to the Fed’s 2 percent target. The financial markets need to cooperate and we shouldn’t have any abrupt tightening because of what’s going on in the U.K.," he said.

"Right now, I think the best bet would be that they wait until December," he added.

Goldman said it has only been a few weeks since the U.K. voted to leave the EU, known as the Brexit, and it is not likely to affect U.S. macroeconomic data as Wall Street has shrugged off Brexit worries.

"For the stock market, we had a 50 basis point decline in long-term rates since Brexit and that's having a positive effect on the economy by offsetting the Brexit concerns for stock prices," he said.

Sweet agrees and said he does not think the Brexit will have a significant effect on U.S. employment.

"Financial markets have bounced back, our direct exposure via trade is very small,” he said.
“All in all, it seems like the spillover effect will be very small. In fact, we only received a tenth of a percentage point off our GDP forecast for next year because of the Brexit," he added.