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US Federal Reserve


June 9 2015, 08.15am GMT


After the Friday release of the strong jobs report for May, all eyes are on the reaction of Federal Reserve regarding an interest rate hike.

Interestingly, economists think that the better than expected data will not likely lead to a rate hike in June but it makes a third quarter increase much more likely.

According to the job data, the U.S. economy added 280,000 jobs in May, more than the 210,000 expected gain. Despite this, the unemployment rate hiked to 5.5%, an indication that more people entered the labor force in order to find work.

Chief economist strategist for LPL Financial, John Canally, however noted that the 3-month average is still below the average job gains evident in  2014.This three-month average is at 207,000 compared to the 260,000 average job gains in 2014.

In an interview, Canally expressed pessimism in the job gains tightening in June.

Based on this, analysts are telling investors to prepare for a rate hike as the autumn season starts or even maybe even earlier. The Fed fund futures contract is indicating that the rate hike will happen in October, which is two months ahead of the expected date before the release of the jobs report.

According to Thomas Simons, an economist at Jefferies, the positive job report lifts some fears of the economy remaining softer after a weak first quarter performance.

Giving his opinion on the rate hike, chief U.S. economist at Capital Economics, Paul Ashworth, stated that a rate increase it likely to occur before December. In a note to clients, Ashworth said that the labor market strength is not enough to prompt a rate increase by July but it certainly makes a September move probable.

Also, Rob Carnell and Chris Williamson, chief economists at ING and Markit respectively, expect the Fed to raise rates in the third quarter. Carnell thinks that the rate hike will be somewhere between July and September while Williamson thinks that a September rate hike is “firmly on the table.”

Collectively, economists suggested that the Fed is unlikely to follow the “strong” advice from the international lender, IMF (International Monetary Fund), where it advocated for a 2016 interest rate increase instead.

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