November Jobs Report: Here Come Higher Interest Rates

Janet Yellen was already signaling an interest-rate hike for next month, and the latest jobs report plus expectations of what Donald Trump might do make it a certainty.

The next-to-last official jobs report of the Obama administration came in Friday, with the usual (for the last four years, anyway) moderately robust jobs growth (178,000 net new jobs, almost exactly what the forecasters expected), gradually declining unemployment (the official rate dropped from 4.9 percent to 4.6 percent in November), and very slowly rising wages (2.5 percent for the year).

You can expect some of the same people who dissed very similar jobs numbers in previous months to trumpet the November numbers as part of some Trump Boom. But there is almost no chance these numbers — mostly collected via employer interviews early in the November — have anything to do with the president-elect.

It’s possible to say the same about the virtual certainty of a modest interest-rate hike by the Federal Reserve Board when its open-market committee meets on December 13 and 14. Fed chairman Janet Yellen has been signaling this action for some time, and the status quo jobs report will do nothing to change that prospect.

What could change very quickly, however, are expectations for additional rate hikes next year, and that’s all about Trump. Aside from his own preference for generally higher interest rates, which will be echoed by conservative economists, policy makers, and investor types, global markets are clearly expecting him and the Republican Congress to pursue policies (fiscal stimulus via tax cuts and perhaps certain categories of much higher spending, plus business and financial deregulation) that will create a short-term boost in GDP, and perhaps even the first significant inflation in years.

The main sources of uncertainty about future interest rates involve residual fears Trump will actually implement his wildly risky promises to go to war with China over its currency valuations and/or tear up global trading rules (which could lead to a worldwide recession), and Trump’s direct effect on the Fed itself via appointments. There are two open seats on the seven-member board of governors of the Fed that he will be able to fill early next year, and the terms of Yellen and Fed vice-chair Stanley Fischer will expire in February of 2018. Barring economic calamity, the era of very low interest rates in the U.S. is almost certainly coming to an end.

November Jobs Report: Here Come Higher Interest Rates