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 Employers outside of the farming sector added 271,000 jobs in
October, the most in 10 months, and the jobless rate fell to a
7-1/2-year low of 5.0 percent, the Labor Department said on Friday.
Policymakers at the U.S. central bank welcomed the data and
investors increased bets that the first rate increase in more than
nine years will come next month. Futures markets shifted to show a
70 percent probability of a December rate hike, up from 58 percent
before the report.
"We've indicated that conditions look like they could be right for
an increase," Chicago Federal Reserve Bank President Charles Evans
told CNBC. "The real side of the economy is looking a lot better."
With a number of Fed officials already saying they do not want or
expect the jobless rate to fall much further, it would likely take a
devastating blow in November hiring or mayhem in financial markets
for a majority of policymakers to give up on their expectation of a
hike at their Dec. 15-16 policy meeting.
A Reuters poll of top bond dealers showed a growing number expected
borrowing costs to go up next month, with 15 of 17 looking for a
hike. [FED/R]
"We are doing about as good as we could ever do," St. Louis Fed
chief James Bullard said at an event in St. Louis, adding that his
economic models suggested the jobless rate was poised to drop to as
low as 4 percent.
Fed Governor Lael Brainard, however, stepped up calls for officials
to proceed with care given weakness overseas and the Fed's lack of
ammunition to respond to any possible renewed weakness at home with
benchmark rates already near zero.
"The ability to offset spillovers from adverse developments in
foreign economies with conventional policy is constrained,
suggesting greater caution than normal," she told a conference
sponsored by the International Monetary Fund.
MORE THAN ENOUGH
Prior to Friday's report, private economists had said job gains
above 150,000 in October and November could be enough for the
central bank to push rates higher next month.
Some Fed officials think the bar should be even lower, meaning a
December rate increase is likely even if job growth in November
looks lackluster.
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A range of research at the central bank suggests the Fed could
feeling comfortable raising rates even if monthly job growth dropped
to around 100,000 as long as other signals on the economy's health
do not flash warning signs.
Atlanta Fed President Dennis Lockhart has said more than 100,000 new
jobs a month is enough to outpace population growth, while Bullard
has pinned the number between 100,000 and 125,000. Cleveland Fed
President Loretta Mester thinks job growth as low as 70,000 could
keep the jobless rate steady.
These numbers are considerably lower than was normal in past decades
because the U.S. population is becoming increasingly elderly, and
the baby boom generation is now retiring in droves, slowing growth
in the workforce.
Indeed, U.S. central bankers have been saying job creation needs to
slow. Already, the median view among Fed policymakers is that an
unemployment rate below 4.9 percent would eventually send inflation
above their 2 percent target.
"The natural expectation is for the pace of job growth to slow in
the months and quarters ahead. We are expecting that to happen,"
Bullard told Reuters in an interview on Thursday.
(Reporting by Lindsay Dunsmuir and Jason Lange in Washington;
Additional reporting by Howard Schneider in St. Louis; Writing by
Jason Lange and Tim Ahmann; Editing by Andrea Ricci and Chizu
Nomiyama)
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