The Federal Reserve is keen to continue the process of normalising interest rates to give themselves room for manoeuvre when the next recessionary wave strikes (as it must). They had planned to have four 0.25% hikes spread out over the course of the year, but events got in the way of that. With “Brexit means Brexit” the meaningless mantra in the UK at the moment, it’s pretty clear that the delay in the rate hike in June will be just that: a delay.
Whilst the Federal Reserve will keep an eye on global economic conditions and the effect of the UK’s vote for economic self-harm on the world’s (now) 6th largest economy and the knock-on effect on the world’s largest trading bloc, the EU, minds will inevitably focus on the US domestic economy in an election year.
US job creation data came in at 151000 in August, but that was a significant fall on the July figure of 275000. The official US unemployment level remained unaltered at 4.9% of the workforce. The August data is well below the running average job creation figure for the past 12 months which came in at 204000. The 4.9% unemployed figure for “non-farm payrolls” means that 7.8 million Americans are out of work and actively seeking a job (unless you are deemed to be actively seeking work, you don’t feature in the figures).
Some economists are interpreting the sub-par job creation figure as mitigating against an early rate rise (i.e. later this month), but most think it remains on the cards before the end of the year. This sentiment was encouraged last week by Janet Yellen’s comments on the nation’s economic growth and relatively strong job market: "the case for an increase in the federal funds rate has strengthened in recent months".
One thing is certain, the Fed can’t wait until the world understands just what “Brexit means Brexit” actually does mean, in practical terms, but more of that later.