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USD: December fireworks almost certain after strong NFP data - MUFG

FXStreet (Delhi) - Derek Halpenny, European Head of GMR at MUFG, suggests that the 271k gain in NFP on Friday all but confirms that the FOMC will raise the range for the federal funds rate by 0.25-point on 16th December.

Key Quotes

“It wasn’t just the NFP gain of course with pretty much all components of the report pointing to strength. The unemployment rate drop to 5.0% and the 0.4% gain in hourly earnings that pushed the annual rate to 2.5% were probably more important factors.”

“From the FOMC’s perspective we doubt there were any members who believed the labour market had turned decidedly weaker after two weak gains in NFP in August and September. But probably every FOMC member remains unsure about where exactly the NAIRU level lies in the US and hence every time the data showed muted wage gains, the more the FOMC was unsure about that big unknown.”

“While Friday’s report doesn’t necessarily clear that issue up, it certainly will encourage most FOMC members to conclude that we must be around that key NAIRU level that should prompt the FOMC to act. Were it not for the 313k increase in the labour market according to the household survey, the unemployment rate would have dropped further.”

“As has been the case throughout this economic recovery, the FOMC has been overly pessimistic about the speed at which the unemployment rate would fall to such an extent that we have basically hit the FOMC’s estimate of NAIRU (4.9%) without the FOMC having raised rates at all. The FOMC may soon be hoping for some softening in the data because a few more reports like Friday’s and the financial markets may quickly shift from the current benign expectations of an ultra-slow monetary tightening cycle to a view that the FOMC is seriously behind the curve. But that’s for another day!”

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