Fed ready to raise rates after solid figures on US employment
The US Federal Reserve looks to be on the cusp of raising interest rates this month for the first time in close to 10 years after solid jobs figures suggested the world’s largest economy was resilient enough to withstand it.
Such a move would likely see the value of the dollar rise against the euro, potentially boosting Ireland as an attractive destination for visitors from the US, but making America pricier for Irish holidaymakers.
The strong economic data out of the US coincided with the announcement that era of cheap oil looks set to continue.
OPEC announced it would maintain its policy of running near-record volumes of oil, taking no steps to reduce one of the worst crude gluts in history which has driven down prices for consumers. Oil prices fell further on the announcement.
And ratings giant Standard & Poor’s maintained Ireland’s A+ rating, forecasting the economy to grow on average by 4pc over the years to 2018.
In its latest assessment of Ireland, S&P said it did not expect the Government’s “pre-election” giveaways in the Budget to derail it from its targets.
“The expansionary measures announced so far are within our current base case, and the additional spending on health care should cover at least part of the recurring overruns in the sector,” it said.
“However, continued upward pressure on public sector wages and the further unwinding of emergency measures implemented during the financial crisis will weigh on future budgets.”
But for economists, the most anticipated data set yesterday was US jobs numbers. They showed that employment increased strongly last month.
The figures came a day after Fed Chair Janet Yellen struck an upbeat note on the economy, describing how it had largely met the criteria the US central bank has set for the Fed’s first rate hike since June 2006.
“The employment report should remove the final doubts about a rate hike at the December meeting. The clear message from the labour market to the Fed is: ‘Just do it!’” said Harm Bandholz, chief US economist at UniCredit Research in New York.
It’s widely expected that a rise in interest rates in the US would push the value of the euro against the dollar down, just a day after European Central Bank chief Mario Draghi sent the single currency higher after he disappointed investors by not expanding the ECB’s quantitative easing programme further.
Elsewhere, oil prices fell yesterday after news that OPEC was planning to maintain its production near record highs despite depressed prices, as the producer group continued to guard its share of an oversupplied market.
OPEC’s Secretary General Abdullah al-Badri said the group was unable to agree on a production ceiling, in part because it was unclear how much oil Iran would export next year when sanctions are lifted.
The lack of consensus apparently allowed member countries to continue pumping oil at current rates into a glutted global market.
Yesterday’s announcement sent ripples through wider markets, but losses in oil futures were limited as prices hit key support levels around $40 a barrel.