MercoPress. South Atlantic News Agency

US unemployment drops to 5%; Fed expected to raise rates in December

Earlier this week, Janet Yellen, chair of the Fed, told a Congressional committee that a rise in US interest rates in December was “a live possibility”.

Expectations of a rise in US interest rates in December have soared following a stronger-than-expected jobs report. The US economy added 271,000 jobs in October, far exceeding the 185,000 jobs that economists had forecast.

 That strong number has raised expectations that the US Federal Reserve will raise interest rates at its policy meeting in December. The Fed cut rates to near-zero in December 2008 in response to the gathering financial crisis.

The recovery since then has been slow, but October's jobs report could help persuade policymakers that the time has come for the first rise in interest rates since June 2006.

“That was an astounding number. It's pretty clear that the Fed would be justified in hiking in December, if the economy doesn't hit another air pocket,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds.

The report, from the Bureau of Labor Statistics, showed the jobless rate fell to 5% - the lowest rate in seven-and-a-half years. In addition, there was positive news on previous months, with the number of jobs created in August and September raised by a net 12,000.

There was also a strong rise in wages last month. Average hourly earnings rose nine cents to $25.20, which is a 2.5% rise on a year earlier.

The strength of the labor market is an important consideration for the Fed when deciding whether to move interest rates.

Earlier this week, Janet Yellen, chair of the US Federal Reserve, told a Congressional committee that a rise in US interest rates in December was “a live possibility”.

Some economists now think that a rise in December might be the start of a series of rate rises.

“It's almost a sure thing that the Fed will tighten in December. Based on their communication, they might move every other meeting,” said Mike Bazdarich, an economist at Western Asset Management.

After opening higher, the major US stock market indexes fell. The US dollar jumped following the report, adding one-and-a-half Euro cents to €0.9311.Against the pound, it strengthened by more than a cent to $1.5047.

Job creation was strongest in professional and business services, healthcare, retailing, restaurants and bars and construction.