The chances for a rate hike to end 2018 are becoming more imminent as the latest employment data suggests that the labor market remains robust–a key metric for the Federal Reserve as a December rate hike decision nears.
According to CME Group’s FedWatch Tool, there is a 72.1% chance that the Fed will raise interest rates by another 25 basis points to cap off a fourth and final rate hike for 2018–all thanks to the most recent employment data. The current federal funds rate stands at 2.25, but economic prognosticators see that the rate reaching well beyond that in the next year or so.
“We’re ultimately headed to around 4.5%-ish,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
Wage Gains Surpass 3 Percent
October posted better-than-expected employment data from the Labor Department, which showed that year-over-year wage gains surpassed 3%–a first since the Great Recession, while nonfarm payrolls gained 250,000–better than the expected 190,000 by Refinitiv estimates.
The latest employment data paired recent numbers showing wages and salaries climbed in the third quarter to its highest level in 10 years, beating out polled economists’ expectations with a 0.9% increase as opposed to the 0.5% forecasted. The Labor Department also reported that the employment cost index was 0.8% higher, narrowly beating estimates of 0.7% from a Refinitiv survey of economists.
The unemployment rate remained at a generationally low 3.7%. Average hourly earnings gained by 5 cents an hour during October and 83 cents year over year–the largest jump since 2009, which will be a key metric should the Federal Reserve hike interests for a fourth and final time in 2018.
Wages, Salaries Climb in Q3
Additionally, wages and salaries climbed in the third quarter to its highest level in 10 years, beating out polled economists’ expectations with a 0.9% increase as opposed to the 0.5% forecasted. The Labor Department also reported that the employment cost index was 0.8% higher, narrowly beating estimates of 0.7% from a Refinitiv survey of economists.
“Wages are grinding higher as the labor market continues to tighten,” said Justin Weidner, an economist at Deutsche Bank. “Wage growth is likely to be over 3 percent again soon.”
The data comes as the Labor Department revealed that job growth in the month of September retreated to its lowest level in the past 12 months, while the unemployment rate fell to its lowest level in almost 50 years. Nonetheless, all the data points to a still-strong labor market as employers will have to use higher wages as the primary attraction for talent.