NEW YORK: Federal Reserve officials will step up efforts to prepare markets for an interest-rate increase in year 2015, economists Brian Jones said, after data showed hiring in the US surged the most in almost three years.
“If there’s going to be a move in June, they’ve got to prepare the battlefield, and that’s what you’ll see,” said Brian Jones, senior U.S. economist at Societe Generale in New York.
Fed officials will stress that policy depends on progress toward its goals of stable inflation and full employment, rather than the calendar, economists said. The reason: If market expectations are out of kilter with Fed intentions, the central bank risks an unwanted jump in bond yields reminiscent of last year’s “taper tantrum.”
“The markets seem to have bought into this idea that no matter what the economic data is, the Fed goes late in 2015,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York. He said he expects a first rate increase as early as March or as late as June.
A Labor Department report yesterday showed employers added 321,000 jobs to payrolls in November, the most since January 2012. The jobless rate stayed at 5.8 percent, a six-year low, while earnings rose by the most since June of last year.
“We had a strong unemployment report this morning,” Loretta Mester, president of the Cleveland Fed, said in response to questions yesterday after a speech in Washington. “As the economy continues to improve as we have seen, then I would think we would be raising rates sometime in 2015.”
The gap between the Fed’s own forecasts for the timing and pace of rate increases and market expectations narrowed slightly after the jobs report.
