Strong US job data sparks debate on Fed rate hike

New US government figures released today (June​ 5th) show job growth jumped in May and wages picked up, fuelling speculation that an interest rate hike could happen as early as September.

Nonfarm payrolls increased 280,000 last month, the largest gain since December, the Labor Department said today. Payrolls for March and April were revised to show 32,000 more jobs created than previously reported. 

The unemployment rate rose to 5.5 per cent from 5.4 per cent in April, but the Labor Department said that was because more people entered the workplace. In addition, the figures unveiled an eight cent gain in average hourly earnings.

"This certainly puts more ammunition in the Fed's plan to start lift-off in September," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, quoted by Reuters.

Key financial players are divided

A debate has been going on for months about when the US Federal Reserve will start raising interest rates from historical lows.

Recent weak data on consumer spending and industrial production suggested the US economy was still fragile in the second quarter of the year.

Yesterday, the International Monetary Fund (IMF) urged the US Federal Reserve to delay any interest rate hike until 2016.

It said in its annual assessment of the economy that US monetary authorities should wait for signs of a pickup in wages and inflation, adding that "pockets of vulnerability" in the US economy have emerged that could cause serious trouble for the wider economy.

"Based on the mission's macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," the fund said.

But Federal Reserve Chairwoman Janet Yellen warned in May that a rate hike is still on the cards for 2015. She said that if the US economy continues to strengthen, "it will be appropriate at some point this year to take the initial step to raise the federal funds rate".