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1 Dec 2015
US wage growth: Key for long-term bonds – SocGen
FXStreet (Delhi) – Research Team at Societe Generale, notes that recently, domestic price pressures have started to build up again, with alternative measures of inflation, such as the Core CPI and trimmed mean CPI, edging up.
Key Quotes
“In 2015, the absence of inflation was a key reason for the Fed’s dovish policy. While the impact of lower commodity prices on inflation is largely seen as transitory, tepid wage growth has raised concerns over the level of slack in the US labour market.”
“Importantly, average hourly earnings rose by 2.5% yoy in October and part-time employment for economic reasons declined sharply. Our economists expect wage growth to finally pick up sufficiently to allow the Fed to follow through with a 25bp rate hike in December and three hikes in 2016. US salaries should be monitored closely, as a further acceleration could lead to a sharper repricing of US rates, if markets believe the Fed is falling behind the curve. In contrast, modest wage growth would support a slower pace of rate hikes and benefit long-term bonds.”
Key Quotes
“In 2015, the absence of inflation was a key reason for the Fed’s dovish policy. While the impact of lower commodity prices on inflation is largely seen as transitory, tepid wage growth has raised concerns over the level of slack in the US labour market.”
“Importantly, average hourly earnings rose by 2.5% yoy in October and part-time employment for economic reasons declined sharply. Our economists expect wage growth to finally pick up sufficiently to allow the Fed to follow through with a 25bp rate hike in December and three hikes in 2016. US salaries should be monitored closely, as a further acceleration could lead to a sharper repricing of US rates, if markets believe the Fed is falling behind the curve. In contrast, modest wage growth would support a slower pace of rate hikes and benefit long-term bonds.”