November's Strong Jobs Numbers Revive Worries About the First Interest Rate Increase From the Fed

12/05/2014 5:00 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Analysts question if today’s robust jobs numbers will lead the Fed to move up the date of its first interest rate increase, and MoneyShow’s Jim Jubak illustrates how it could mean the first quarter of 2015 rather than the third quarter as the market consensus is expecting.

You’ve had your five minutes to feel good about the strength of the US economy after the government reported the country added 321,000 net new jobs in November.

Now it’s time to start worrying about the effect of the good news on the Federal Reserve. Will a robust jobs market—even if unemployment is stuck at 5.8%—lead the Fed to move up the date for its first interest rate increase?

That’s certainly what the Treasury market was thinking by the end of the day. The 10-year Treasury fell in price to raise the yield on the benchmark issue by seven basis points to 2.31%. The yield on the two-year Treasury climbed nine basis points to 0.64%. The US dollar rose as well with the Dollar Index up to 89.34.

To be fair to today’s jobs report, these worries had started to surface before this morning. On Monday, December 1, Stanley Fischer, the Fed’s vice chairman, said that the economy could finally be near the liftoff point where companies start to compete for workers and wages move up strongly. “I think that’s about to happen,” he said. On Tuesday, he continued in that vein, saying, "If the labor market continues to strengthen, and if we start to see some signs of inflation beginning to increase, then the natural thing is to get interest rates up.”

The Fed’s Open Market Committee next meets on December 17. The betting, among those who think the Fed will do or say something after that meeting heavily favors “saying.” The Fed could, this thinking goes, change its “for a considerable time following the end of its asset purchase program” in a way that would signal that the first increase in interest rates might come in the first quarter of 2015 rather in the third quarter as the market consensus is expecting.

The next inflation readings are likely to be a key part of the Fed’s decision and the speed with which market worries will grow. The next inflation report comes Friday, December 12, with the wholesale Producer Price Index. That’s followed on December 17 by the Consumer Price Index.  Right now the forecast is for a low 0.2% increase in the core CPI. (That’s inflation without food and energy prices.)

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