US Payroll figures surprise market, but October rate rise still on the cards.

US Bond and equity markets jumped on Friday night following the release of lower than expected Non Farm Payroll figures and lower than expected hourly earnings figures for August.

In addition July earnings figures were revised down from +0.5% to +0.3%. The combined effect was to ease inflationary concerns, and therefore reducing the chance of a further 0.25% rate rise at the October 5th FOMC meeting of the Federal Reserve.

If Fed chief Alan Greenspan decides not to increase rates next month it will be an extraordinary achievement, with the US economy still steaming ahead strongly, but with rates 0.25% lower than they were last year.

However, the chances of a rate rise in October remain strong, whatever the market may be predicting. Greenspan will be keen to make sure his message has well and truly hit the mark, and he is still more than concerned about the dangers of the overbought equity markets.

He now has the unenviable task of juggling not only the economy and inflation, but also trying to ensure that he provides the market with a soft landing, failing which he may need to adjust other policy settings to compensate. His track record to date is excellent; let’s hope it remains that way.

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