October NFP Surprises to the Upside Bolstering the Case for a December Rate Hike

The dollar surged while stocks, oil, Treasuries and swap rates all sold off after today’s robust October employment report fueled December rate hike expectations.  Today’s NFP was impressive across the board; employment jumped the most since December 2014, wage growth accelerated more than expected, and the unemployment rate fell to 5.0%.  The 271,000 headline number provides a clear indication that weak August and September employment gains were just a blip, and the increase in hourly earnings improved the inflation outlook, pushing the annual rate up to 2.5%, its fastest pace since July 2009.  

In response, the futures market increased the odds of a December rate hike to 70%, up from only 50% just a week ago, and 25% less than a month ago.  Both St. Louis Fed President Bullard and Chicago Fed President Evans commented on the strength of the report and said that they will strongly consider a hike at the December meeting.  The Fed still has a fair amount of data to digest prior to then, but it seems likely they will begin the normalization process absent of any significant negative foreign developments or a sharp appreciation of the dollar.