Home Analysis: NFP risks second rate hike, not the first in

Analysis: NFP risks second rate hike, not the first in

The Non Farm Payrolls disappointed with a weak headline number, negative revisions and mostly painfully no monthly change in wages. This puts the y/y change at only 2% after the breakout we had last time. With no wage inflation, there is no real rise in core inflation which the Fed cares about.

Nevertheless, and assuming no disaster in Europe,  this is unlikely to derail the first rate hike, only postpone the second one. Here are 5 points to consider:

  1. Gathering around September: Fed officials  began talking more and more about a hike in September. After having made these  preparations, they could always  return to being “data dependent” and postpone it. However, they seem on track.
  2. Gradual moves: Alongside the message  of raising rates, we have also heard the Fed will do it gradually, and markets are beginning to believe this. Yellen is believed to be one of the members that sees only  one hike in 2015. A move in September and a wait until January or March could well fit the  gradual nature of the process.
  3. A one-off: As the weak March NFP was a one-off regarding job gains, the Fed could easily dismiss the fall in wages as a one off.
  4. Other indicators are positive: The Atlanta figures  have shown a y/y gain of 3.3% in April and in May. While we don’t have the June data,  these numbers are good. Also the Employment Cost Index and Labor Costs are quite upbeat.
  5. Uncomfortable with low rates: We are in zero interest rates for ages and some  just think it will stay like this forever. With the Fed already blamed for the previous bubble, they would like to shy away from a new one.

What do you think?

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.