U.S. jobs data to hold key to Fed's rate plans

Sun Nov 1, 2015 5:40am EST
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By Francesco Canepa

FRANKFURT (Reuters) - U.S. jobs data due in the coming week may hold the key to whether the Federal Reserve will raise interest rates for the first time since 2006 in December, signaling its intention to end an era of almost-free dollars.

An increase in Fed rates would have consequences well beyond U.S. borders, increasing borrowing costs for dollar debtors in emerging markets, pushing up the greenback against some major currencies and driving a global reallocation of investment money.

The Fed, which has a dual mandate including inflation and employment, put a December rate hike firmly in play in the past week and investors will be scrutinizing Friday's U.S. employment data to work out the odds of such a move.

Analysts polled by Reuters expect U.S. employers outside the agricultural sector to have added 180,000 jobs in October and overall earnings to have increased by 0.20 percent during the month.

"If we get 175,000 or 180,000 (new jobs) and wages up three tenths of a percent, that significantly increases the probability that the Fed will raise rates in December," said Mickey Levy, an analyst at Berenberg in New York.

HSBC economists also said that average job gains above 150,000 a month in October and November may be enough to keep a December rate hike on the table for most members of the Fed's Federal Open Market Committee.

Financial markets are pricing in a 50 percent probability that the Fed will increase its main interest rate to 0.25 percent or even 0.50 percent from the current 0.125 percent on December 16, according to data compiled by CME group.

The state of the U.S. labor market is not the only concern for the Fed, which made an explicit reference to "uncertainty abroad" when it decided to hold rates steady in September.   Continued...

The Federal Reserve building is pictured n Washington, in this September 1,  2015 file photo. REUTERS/Kevin Lamarque/Files