First response craft

Jobs and wages mean rate hikes are go!

The Federal Reserve's Lady Penelope has her mission: rate hikes are go! Barring market meltdown at home or abroad, US job creation in November, at 211,000 positions according to the Bureau of Labor Statistics on Friday, looks strong enough to allow Janet Yellen's Fed to lift interest rates this month after seven years holding them near zero.

The heroine of Thunderbirds, the British 1960s' puppet sci-fi series, might have become impatient sooner, but Yellen has let the shift in the Fed's stance become overdue. Caution was warranted after the 2008 crisis, but more recently - with several years of steady US growth and falling unemployment as support - it has looked as if the central bank was waiting for an impossibly perfect moment.

Following a hiccup in global stock markets over the summer, the most recent hindrance was a failure to persuade market participants of the Fed's intention to start bringing rates to something like a normal level.

The Federal Open Market Committee (FOMC) held back at its October meeting. But after more Fed jawboning opinions now look aligned. The probability of a 0.25 per cent interest rate hike at the FOMC's December 16 session, as implied by fed funds futures trading, stood at a hair under 80 per cent on Thursday according to the CME's FedWatch analysis.

The Fed won't, however, follow its likely lift-off with rapid-fire action. For one thing, inflationary pressure - half the Fed's mandated concern - is still not in evidence. The other half, US employment, is not yet tight enough to provoke more than tentative pay rises. Hourly earnings rose 2.3 per cent year-on-year to November, according to the BLS.

Just this week, Yellen also underlined that the economically neutral level for the fed funds rate may be low by historical standards, thanks partly to a lasting hangover from the financial crisis. She has made it pretty clear that the Fed is headed for a "dovish hike" this month, with rates increasing only very slowly thereafter.

Despite all the caveats, financial markets could still react badly even to a telegraphed policy change. Yellen can't, however, be accused of shirking the groundwork. The question is whether, when the dust settles, she'll be able to turn to her chauffeur with the same satisfaction as the fictional Lady Penelope with her catchphrase: "Parker - well done!"