The Federal Reserve’s (FED) decisions to hike interest rates in 2022 have led many speculators to forecast the next move.
The following piece of extract details information about the rates as of November 2022:
Interest rates are currently 3.75% - 4% in a bid to tackle inflation and slow down the economy, analysts from Bloomberg have also guessed that it may continue to hike “past 6%”. Based on the federal reserve and research from Trading Economics, it is believed that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening monetary policy, with its impact on all segments of the economy.
Given the current interest rates, the impacts on stocks, bonds, saving accounts, and bank deposits remain subject to changes.
Hence, to further understand the impacts of the FED interest rate hikes, this article will feature research from Orient Research Institute on the key influences in the job market and derivatives market.
Unemployment
Based on research from Orient Futures Research Institute, the unemployment rate increased from 3.5% to 3.7%, which was less than expected; the hourly wage growth rate was higher than expected by 0.4% month-on-month and 4.7% year-on-year in line with expectations.
Nonfarm payroll better-than-expected in October, but unemployment picks up.
The latest released US non-farm payrolls added 261,000 jobs in October, higher than market expectations of 200,000. Nonfarm payrolls in August were revised down from 31.5 to 292,000, and September was revised up from 26.3 to 315,000, for a total of 29,000.
Market Influences from Increased Interest Rates
After the data was released, the market's expectations for the Fed to raise interest rates by 50bp in December increased slightly, alternatively, impacts on the derivatives industry include:
- US dollar index fell,
- The 10-year US bond yield fluctuated,
- Gold rebounded (negative) sharply,
- US stocks opened higher, fell, and eventually closed.
Figure 1: US 10-year US bond Yield fluctuated while US debts experience volatility.
Red Line: US Dollar Index
Grey Line: 10- Year US Bond Yield
Figure 2: Gold rebounded sharply while US Stocks released high, declined, and eventually closed up.
Red Line: S&P 500 INDEX (.INX)
Grey Line: Gold Price USD
In the fourth quarter, while the labour market and the margin of demand weakened, market expectations began to change, the support of the US dollar index weakened, and gold began to rebound. Under the current stagflation pattern, stock debt pressure has not been eliminated.
Job Opportunities
New jobs in October were mainly concentrated in the professional and business services, health care, catering, and accommodation industries.
On the other hand, most of the new jobs in various sub-sectors were lower than the level of the previous month, and the number of non-agricultural jobs declines.
Overall, the job market is gradually cooling down, however, due to high inflation and aggressive interest rate hikes by the Federal Reserve, the real economy is under pressure and the unemployment rate rose to 3.7% in August, 3.5% in September, and then again in October.
Of the 3.7%, the unemployment rate of Asians, Hispanics, and Latinos increased by 0.4% month-on-month. A survey of the residential sector also showed that the number of unemployed increased by 300,000 in October, while the labor force participation rate also fell again, indicating that both the supply and demand of labor were declining.
Therefore, because of the cooling labor market and the mismatch between supply and demand, wage growth continued to rise faster than expected month-on-month. To this point, it is anticipated by Orient Research Institute that the tightening of monetary policy cannot change the supply pattern of labor, it is expected that unemployment will continue to rise, and the fall in inflation will follow.
When is the next interest rate announcement?
The next crucial interest rate decision will be made on Wednesday, December 14th at 19:00 GMT.
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