Forecaster Says Job Data Adds to Fed Rate Hike

The steady drop in the U.S. unemployment rate has set up a simple set of arithmetic that will lead to a Federal Reserve interest rate rise soon to ward off future inflation, according to the most accurate forecaster in Reuters polls last year.

Jim O’Sullivan, chief U.S. economist at High Frequency Economics, isn’t yet completely convinced that Janet Yellen’s Fed will begin raising rates in June. But he says it’s only a matter of time before they will have to.

“The idea that the economy is so fragile that it can’t take a rate hike? I don’t think so,” he said.

He doesn’t believe that the U.S. being a lone engine of growth, while many parts of the world economy remain at risk to a renewed downturn, will prevent the Fed from focusing on its mandate of full employment and low inflation.

What concerns O’Sullivan in terms of judging the timing of the first U.S. rate hike in a decade is that even the core measure of inflation the Fed watches has remained surprisingly low at a time when the job market has taken off so strongly.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza