Jobs Report Clears Path For First Fed Rate Hike

Job Growth is "Good Enough" for Fed to Hike Rates

A rate hike has been on the Federal Reserve's radar for quite some time, though most investors have presumed -- and probably wisely so -- Janet Yellen and her fellow Fed governors were waiting on November's unemployment data and job growth numbers before mentally committing to a decision. With that data now in hand, the green light has been all but given for the first interest rate increase in nine years.

The numbers weren't stunningly good. The nation added 211,000 (net) jobs last month. That was less than the 298,000 new payrolls created in October. It wasn't even enough to move the overall  unemployment needle from a rate of 5.0%. But, inasmuch as we didn't move backwards in terms of the unemployment rate and logged another month of net job growth, an addition to a great deal of other encouraging economic data, the Federal Reserve can confidently do in December what it's been talking about doing for months now... raise the Fed Funds rate, most likely by a quarter of a point. Indeed, some consider an unemployment rate of 5% as the right figure in a "full employment" environment.

Employment & Unemployment Rate Chart

That's the bet traders are making anyway.

Based on interest rate future, traders have effectively said (with their dollars) there's a 79% chance the Fed Funds rate will be at 0.5% after the Fed has a chance to raise rates on December 16th. The odds of the Fed Funds rate remaining at 0.25% for the month are only 21%.