There is noteworthy likelihood for the Federal Reserve to decide for an interest rate increase this week given that the latest U.S. employment data exceeded expectations once again.
The Nonfarm Payrolls (NFP) report released by the U.S. Department of Labour showed that the number of new jobs created during February increased to 235,000. This was the best performance of the last seven months and the data will most probably urge Federal Open Market Committee (FOMC) members to consider voting in favour for a rate hike. A separate report by the Department of Labour showed that the unemployment rate decreased slightly from 4.8% to 4.7%.
The prospect of an interest rate increase implies that the U.S. dollar is likely to surge due to the injection of foreign funds into the economy. However, the always present disadvantage to this prospect is that the stronger dollar will reduce exports as foreign businesses will seek cheaper alternatives. According to the U.S. President, other exporting countries perform better because they artificially devalue their currencies in order to attract interest.
There is now consistent proof for economic growth in the U.S. and that does not come only through the employment data. Several economists are encouraged by the consecutive and strong economic reports and believe that last week’s strong NFP data release have left the Federal Reserve (Fed) with little room to manoeuvre away from a rate hike. But others think that further stability is needed for the Fed to move with more than three interest rate hikes during this year, which is what the markets already anticipate.
President Donald Trump earlier in the week reacted to encouraging estimates regarding the employment market by tweeting “Great news. We are only just beginning. Together, we are going to #MAGA!”. The preliminary data, prepared by ADP, showed that there was employment growth in a number of sectors many of which offered large wages. And even though the ADP estimated the new jobs in February to be 298,000, almost 60,000 more than the actual NFP data released on Friday, it pushed some investors to revise their projections upwards.
