US: Falling unemployment and rising wage pressures to keep the Fed tightening - RBC

 Analysts at RBC Capital Markets point out that the NFP report released today shows continued strength in the jobs markets. They expect more rate hikes from the Federal Reserve in December and next year. 

Key Quotes: 

“Today’s employment report indicated continued strength in labour markets in September. Such was most  evident in the unemployment rate which dropped more than expected to 3.7% from 3.9% in August. This rate continues to move further below the Fed’s own estimate of long-run equilibrium for an unemployment rate within a range of 4.3% to 4.6%.”

“Given the current solid momentum in growth, benefitting from still accommodative monetary policy and recent tax cuts, above-potential growth is expected to continue through next year. This is expected to put further downward pressure on the unemployment rate.”

“Indications of a falling unemployment rate and rising wage pressures are expected to keep the Fed tightening. Our forecast assumes the fed funds range will rise another 25 basis points in the final quarter of this year with similar-sized increases occurring every quarter through 2019. This is expected to result in the upper end of this range finishing next year at 3.50%.”