The FOMC Hikes

The United Kingdom Office for National Statistics reported the unemployment rate falling to 5.20% in October, the least since May of 2008, from 5.30% in the prior month. Claims for unemployment, rose to 3,900 in November following a revised 200 in October. Total pay growth slowed to 2.40% from 3.00% in the third quarter. Excluding bonuses, wages increased 2.00% in October alone, the weakest month since January. If productivity improves, that will allow companies to increase wages without generating inflationary pressures. However, if companies if they can only meet increased demand by employing more workers, labor shortages could force them to lift pay to fill vacancies, putting pressure on costs and stoking price gains. With the UK economy operating close to capacity, the labor market is being carefully watched by Bank of England policymakers as they weigh raising interest rates for the first time since 2007.

After the all-time low interest of 0.25% imposed by the Federal Reserve in December 2008, the FOMC announced its unanimous decision to raise rates by 25 basis points to 0.50%. Policymakers based liftoff on the recent slew of positive economic data and by reiterating their confidence that the inflation target will be met.  According to the projections, the Federal Reserve plans to lift rates further over the next three years, with current expectations showing 1.40% by the end of 2016, implying 4 rate hikes in the coming year. Furthermore, the Central Bank said its policy stance would remain “accommodative” even after the increase with plans to keep a close eye on the inflation rate as it progresses towards the 2.00% target. Economic projections were largely unchanged from September, with unemployment anticipated to fall to 4.70% next year and economic growth to reach 2.40%