Steady US Job Gains Likely Foretell A New Era: Higher Rates

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  • TEMPO.CO, Washington - A new era of higher rates on home and car loans, steeper borrowing costs for businesses and the government — maybe even a bit more return for savers — is about to arrive, the Associated Press reported Saturday, August 8.

    That, at least, is the word from most economists. After another solid U.S. jobs report Friday, they say the Federal Reserve seems all but sure to raise its short-term interest rate next month after keeping it pinned near zero for nearly seven years.

    It would be the Fed's first rate hike since 2006. And it would end the aggressive campaign the central bank began after the 2008 financial crisis to save a teetering banking system and energize an ailing economy. While it could take months, the Fed's moves should eventually drive up interest rates for mortgages, auto loans and other consumer and business borrowing.

    "The most advertised and anticipated play" is a Fed rate hike in September, David Kotok, chief executive at money management firm Cumberland Advisors, said Friday after the July jobs report showed that employers added 215,000 jobs and that the unemployment rate held at a nearly normal 5.3 percent. "Markets, economists, and analysts expect it."

    Not all of them do.

    Some economists argue that a September rate increase isn't guaranteed. They say Friday's figures showed that some gauges of the job market remain weak. Pay increases, for example, are still sluggish. And hiring hasn't been strong enough to draw millions of Americans who've given up on their job searches back into the hunt.

    What's more, a strong dollar is hurting U.S. exporters and making foreign goods cheaper in the United States, which could shrink inflation even further below the Fed's 2 percent target.

    "A September rate hike is by no means a done deal," Chris Williamson, chief economist at Markit, said in a research note. "Low inflation and cooling growth will create powerful arguments against rate hikes."