Drop in Unemployment Rate Is Not Enough to Calm Market with Higher Interest Rates

By MoneyTimes

Sep 07, 2015 03:45 AM EDT

There may be a big drop in unemployment rate, but U.S. still fails to calm markets with the big possibility that the Federal Reserve will increase interest rates.

According to Telegraph UK, U.S. unemployment rate dropped to a seven-year-low last month. According to data from the US Labor Department, unemployment rate went down 5.1pc in August, the lowest it has been since April 2008. This is also a level that the Fed considers to indicate "full employment."

Meanwhile, as Reuters puts it, nonfarm payrolls went up to 173,000 in August, following an upwardly revised increase of 245,000 in July. That increase in August is the smallest for the past five months. It was the factory sector that was hit by unemployment the most back in 2013. The payrolls data from June to July show 44,000 more jobs were created, bringing the average job increase to 221,000 for the last three months. Also, average hourly earnings went up 8 cents, the biggest increase for the last seven months. The average workweek length is also longer.

Despite these figures in employment, there is still a big possibility for U.S. interest hikes, which makes the market still anxious. The US Federal Reserve's Open Markets Committee will meet on September 16 and 17. They are less likely to raise interest rates if the economy is doing great. But the drop in unemployment and increase in wages could mean that the central bank could give the go signal for the hike this month.

According to Capital Economics' chief US economist Paul Ashworth, "As far as we're concerned, the September meeting is a 50-50 toss-up. Even if the Fed doesn't hike rates in September, it won't leave rates at near-zero for much longer."

Meanwhile, US Fed chairman Janet Yellen has always been looking forward to increasing the interest rates on September, especially with the signs that the economy is gradually improving.

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