Economic data releases were light and bond yields remained volatile this week as market participants positioned their portfolios ahead of next week’s Federal Open Market Committee’s (FOMC) two-day meeting starting next week on December 13th. We believe the FOMC is likely to increase the federal funds rate 0.50% at its December meeting, lifting the target range to 4.25%-4.50%.
The market received key updates on the state of the US economy this week; the November employment report was released this morning and indicated that the US economy added 263,000 jobs last month, exceeding the consensus estimate from economists of 200,000. Gains were broad-based across a number of industries, with leisure and hospitality leading the job growth, followed by health care and government (mostly local government), respectively. The unemployment rate was unchanged at 3.7% and the underemployment rate eased to 6.7% in November. A point of interest in the report was the unexpectedly high average hourly earnings jump of 0.6% month-over-month, and 5.1% over the last year, which might have received a boost from severance packages resulting from recent layoffs.
Inflation continues to run well above the Fed’s longer-run target of around 2.0%. The Consumer Price Index (CPI) was up 7.0% year-over-year in December, versus up 6.8% year-over-year in November. Core CPI (CPI less food and energy) was up 5.5% year-over-year in December, versus up 4.9% in November.
