Surging U.S. job growth lowers bar for Fed rate hike

Fri Nov 6, 2015 6:24pm EST
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By Jason Lange and Lindsay Dunsmuir

(Reuters) - Strong growth in the number of U.S. jobs last month bolstered the case for a December interest rate hike by the Federal Reserve, where officials had already begun to worry the economy might eventually overheat without higher borrowing costs.

Employers outside of the farming sector added 271,000 jobs in October, the most in 10 months, and the jobless rate fell to a 7-1/2-year low of 5.0 percent, the Labor Department said on Friday.

Policymakers at the U.S. central bank welcomed the data and investors increased bets that the first rate increase in more than nine years will come next month. Futures markets shifted to show a 70 percent probability of a December rate hike, up from 58 percent before the report.

"We've indicated that conditions look like they could be right for an increase," Chicago Federal Reserve Bank President Charles Evans told CNBC. "The real side of the economy is looking a lot better."

With a number of Fed officials already saying they do not want or expect the jobless rate to fall much further, it would likely take a devastating blow in November hiring or mayhem in financial markets for a majority of policymakers to give up on their expectation of a hike at their Dec. 15-16 policy meeting.

A Reuters poll of top bond dealers showed a growing number expected borrowing costs to go up next month, with 15 of 17 looking for a hike. [FED/R]

"We are doing about as good as we could ever do," St. Louis Fed chief James Bullard said at an event in St. Louis, adding that his economic models suggested the jobless rate was poised to drop to as low as 4 percent.

Fed Governor Lael Brainard, however, stepped up calls for officials to proceed with care given weakness overseas and the Fed's lack of ammunition to respond to any possible renewed weakness at home with benchmark rates already near zero.   Continued...

Federal Reserve Board Chair Janet Yellen  in Washington November 4, 2015.   REUTERS/Gary Cameron