Wages are stuck at 2.5% y/y. If the Fed is truly data-dependent, this data should hold them back from raising rates. And not only are wages poor, job gains also slowed down: only 138K jobs gained and a significant downwards revision worth a whopping 66K.
If they do hike, they are basically trapped in their own setting of expectations. If they are indeed trapped, their only escape route is to make it a “dovish hike” – raising rates now but signaling a pause for the remainder of the year.
Other figures are not that supportive of a rate hike:
Data dependent or markets dependent?
The Federal Reserve raised rates in March, three months after the December move. The previous hike was in December 2015. The FED accelerated its tightening cycle, so things must be improving, right?
No. They did not change the outlook. It seemed like an opportunistic move to raise rates while stock markets were calm. So, they were bringing it forward rather than accelerating the whole cycle.
Are they doing it once again?
USD falls anyway
The dollar is selling off in any case: EUR/USD reached new highs at 1.1282 and counting. Other currencies, including the election-troubled pound and the oil-wary loonie, are also partying against the greenback.
US Treasury yields are in a downtrend, breaking various moving averages and flirting with the lows of the year. Markets do not believe the US economy is really growing, and certainly not justifying a tightening cycle.
