An interest rate hike is (probably) coming this week


The November jobs report released last week confirms our view at Simply Money Advisors: the job market continues to be a source of economic strength in the U.S.

The economy added 228,000 jobs in November, which was much stronger than economists' estimates of 195,000. Job additions were widespread across most industries, including education, manufacturing, and business services.

The U.S. has now experienced monthly job additions for the past seven years and two months (86 months).

Despite this strength, your pay is still not rising at a very quick pace. Over the past year, wages are only 2.5% higher. This means if you were making $50,000 last year at this time, in theory, you’re now making $51,250.

This lack of wage inflation may be one reason the Federal Reserve (Fed), our nation’s central bank, won't be as aggressive in raising interest rates in 2018 as some economists think.

But Simply Money Advisors still believes the Fed will raise short-term interest rates this week on Wednesday, December 13th. The most important thing to watch at this week's meeting - besides the obvious interest rate hike - is the pace of interest rate hikes in 2018 that Fed members believe is warranted.

Economists are unsure what to expect, estimating a wide range of interest rate increases, mostly in a range of two to five. Currently, Simply Money Advisors expects two or three hikes.

This week’s meeting is also Fed Chair Janet Yellen's last important meeting. Chair Yellen will preside over the January meeting, but that meeting will not have a press conference, not have economic projections, and likely not have an interest rate hike.

Jerome Powell will begin his four-year term as Chair of the Federal Reserve on February 3, 2018.

The Simply Money Point

Even though there will soon be a new Chair of the Federal Reserve, it's unlikely that the Fed's policy of slowly increasing short-term interest rates will be much different than what it has been over the past four years, especially with inflation so low. This policy continuation should help you meet the goals listed in your personalized financial plan.

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