The US Labor Market Report, which is released the first Friday of every month, is one of the macroeconomic publications that attracts the most attention from economists, analysts, traders and investors.
The report, which states how many new jobs were created in the previous month and how high unemployment is, was extra important this time. This is because it came on the eve of the Fed's interest rate meeting. The interest rate committee will meet next week to discuss the American official interest rate. How does the report influence that meeting and the meetings that will follow in 2018?
Increase interest?
American companies created 228.000 new jobs in November, significantly more than analysts had expected (195.000). The unemployment rate has fallen further and now stands at 4,1%, the lowest level since 2000.
This and the prospects that the US job machine will continue to run strong for the time being means that the Fed will most likely raise the official interest rate by 0,25 percentage points next week. Whether the bank will raise interest rates 2018 times in 3, as it implicitly promised in recent months, remains to be seen.
In the report we read that wages increased by 2,5% in November, compared to 1 year earlier. That's still not a rise that the Fed expects will put inflation under strong upward pressure anytime soon.
At most once or twice
Since US inflation is still on the low side, it is expected that there will be no upward pressure on wages for the time being. This means that we have to take into account that the US central bank will increase the official interest rate once or at most twice in 2018.
Fewer interest rate increases mean that we must also take into account that the European Central Bank will reduce the extremely stimulative policy in the euro country even more slowly than the bank is already indicating. In other words: interest rates for all maturities in the euro area will remain very low for longer.