US Jobs report doesn't kill chances of Fed hike

October 4, 2015

Washington (Oct 4)  The disappointing jobs report for September released Friday diminishes but doesn't entirely eliminate the chance of a Federal Reserve interest-rate increase at its Dec. 15-16 policy meeting, economists say.

While the data all but rule out a move this month, a December rate hike remains a live, albeit less- likely, option, they said.

Policymakers will get a lot more information about the economy, including two more payrolls reports, before the December meeting. With 13 of 17 Fed officials predicting 2015 liftoff in their latest forecasts, they will be loath to abandon their plans for their first rate increase since 2006 just yet.

"The Fed will not throw in the towel on this year," said Roberto Perli, former Fed economist who is now a partner at Cornerstone Macro in Washington. "The rhetoric will keep the possibility on the table." He has been forecasting a December rise and said "it is premature" to push that back.

Payrolls rose less than projected in September, wages stagnated and the jobless rate was unchanged as people left the workforce, signaling the global slowdown and financial-market turmoil are rippling through the world's largest economy.

"This is a uniformly disappointing report. There's a lot of bad news here," said Nariman Behravesh, Lexington, Mass.-based chief economist for IHS Inc. "Companies are retreating back into their shells a bit."

Economists at BNP Paribas in New York said they pushed out their call for a Fed rate increase to March from December after the employment report. They said in a note to clients they're concerned the data reflect "something more worrying about the underlying health of the U.S. economy, but at this point it is a bit too early to tell."

Behravesh said in retrospect, Fed Chairwoman Janet Yellen and her colleagues on the Federal Open Market Committee "look awfully smart for having held their fire in September" and not raised rates.

Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, said he doesn't think Friday's jobs report "necessarily takes the Fed off track for December." While the jobless rate held steady at 5.1 percent last month, a broader measure of underemployment in the economy fell, he noted.

The underemployment rate — which includes part-time workers who would prefer a full-time position and people who want to work but have given up looking — dropped to 10 percent, the lowest since May 2008, from 10.3 percent.

Fed policymakers face a dilemma in deciding on an increase this year. The jobless rate is near levels most reckon is equivalent to full employment. And payrolls growth — while slower than before — is still faster than necessary to push the unemployment rate down.

Source: TimesUnion

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