Jobs Report Increases Chance of Another 2017 Rate Hike

The U.S. economy added another 209,000 jobs in July, according to the latest employment report. With unemployment down to 4.3 percent and wages on the rise, the report has increased the chance of another Federal Reserve interest rate hike by the end of the year.

The 209,000 new jobs topped economists’ expectations of 183,000. The nation’s unemployment rate now stands at its lowest point in 16 years. Wage growth came in at 2.5 percent for the month.

“More people are coming into the labor force and finding jobs,” said Tony Bedikian, head of global markets for Citizens Bank. “It’s difficult to find anything really negative in the report.”

Stock investors seemed to like what they saw from the jobs market. The Standard & Poors 500 index opened higher by about 0.3 percent on Friday.

The market appears to be pricing in the prospect of additional rate hikes, although the July report didn’t necessarily make the decision a slam dunk for the Fed.

“The wage number – 2.5 – is respectable,” said Jack Ablin, CIO of BMO Wealth Management. “This [jobs report] does not give the Federal Reserve a clue one way or the other. It fits exactly into the trend.”

Ten-year and 30-year Treasury yields jumped to 2.262 and 2.838 percent on Friday morning, as bond investors adjusted to the possibility of another imminent rate hike. According to the CME FedWatch tool, the bond market is now pricing in a 50.4 percent probability of at least a 0.25 percent rate hike by the end of the year, up from a 46.8 percent chance a day ago. The current probability remains well below the 62.2 percent probability bond investors were pricing in one month ago.

Despite three rate hikes already in the past year, the current federal funds target rate of 1.0 to 1.25 percent remains historically low. Earlier this week, former Federal Reserve Chairman Alan Greenspan said the extended period of low interest rates has created a dangerous bubble in the bond market.

“We are experiencing…

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