The US central bank took a calculated gamble last week when it specifically referenced its December policy meeting as a date of a possible liftoff and it had the desired effect: investors quickly rolled back bets that rates would stay near zero until next year. ADP reported 182,000 new private sector jobs compared with a 180,000 forecast.
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Russ Mould, investment director at AJ Bell said: “A bumper non-farm payrolls figure of 271,000 demolishes the consensus estimate and paints an upbeat picture of the USA economy, especially as wage growth crept higher to 2.5%”. U.S. gold futures for December delivery settled down 0.7 per cent at $US1,106.20 an ounce. The greenback is holding above the 98 level at near its highest point in several months.
Yellen, the Fed Chair told the House Financial Services Committee that the economy is “performing well”.
Driving home the point, William Dudley, the influential president of the NY Fed and a permanent voter on policy, later said the he would “completely agree” with Yellen that December is a “live possibility” for raising rates.
ON inflation she said, “if we were to move, say in December, it would be based on an expectation – which I believe is justified – that with an improving labor market and transitory factors fading, that inflation will move up 2%”.
The Fed Chair doubled-down on the possibility of a December rate hike in a testimony to Congress. However, as she has done again and again, she prefaced that the data would have to support the case.
As gold pays no interest, the rise in returns from USA bonds and other markets is seen as negative for the metal.
The unemployment rate stood at 5.1% in September, slightly above the 4.9% rate that officials estimate would satisfy their mandate. Traders had mostly priced out a 2015 increase, only to ramp up those bets after policy makers said in their October policy meeting that they’d assess whether to boost borrowing costs in December.
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Many emerging market economies that are reeling under the impact China’s slowdown is having on their growth outlook, are concerned that a rate hike by the U.S. Fed would trigger large outflows of capital into dollar-denominated assets, creating a market turmoil that would further hurt growth. But that was partly a result of weak exports because of the strong dollar, while consumer spending which makes up more than two-thirds of the economy increased at a healthy rate.
