What's The Most Likely Timeframe For Rate Hikes? (Part 2 of 5)
What’s my take? – I see a mid 2015 as the more likely timing. Here are three reasons why:
1. While November’s non-farm payroll numbers were better than expected, the labor market is not so good as to cement early hike in rates
November’s jobs data marked the tenth straight month in which more than 200,000 jobs were created, and the unemployment rate remains stable at 5.8%. However, while job creation has modestly accelerated from last year’s levels, it’s still not so strong as to necessitate an early end to quantitative easing (or QE).
Market Realist – November’s non-farm payroll numbers are not enough cues for the Fed to start hiking
The graph above shows the monthly change in non-farm payrolls in the US over the last five years. The graph suggests that more jobs are being created every month. Around 321,000 new jobs were created in November alone.
Although jobs are being created, the labor market is not in as good shape as you might have imagined. One key issue is that the labor force participation rate is close to its 35-year low at 62.8%.
Labor force is the number of individuals between the ages of 15 and 65, either employed or actively seeking work. It doesn’t include discouraged workers, homemakers, students above 15, and retired individuals under 65 years of age. The labor force participation rate is the ratio of the labor force and population between the ages of 15 and 65.
Given the current situation, the Fed might be tempted to keep interest low to encourage businesses to expand, and in turn hire more individuals. This could prompt discouraged workers to get back in the labor force.
Low interest rates could support equities (SPY)(IVV) and keep Treasury (TLT)(IEF) and corporate bond (LQD) yields low.
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