The jobs report for November was quite mixed. Employment grew 178,000 in November in line with the recent trend and without any major revisions to previous months.
The unemployment rate fell against expectations, from 4.9% to 4.6%, but this was due mainly to a fall in the labour force, so it fell for the wrong reason.
The most disappointing part of the jobs report was average hourly earnings, which fell 0.1% m/m in November - the first fall since December 2015 and the biggest decrease since December 2014.
Despite the mixed jobs report for November, a Fed hike in December still seems very likely.
As everyone expects the Fed's next rate increase to come at the December meeting, the most interesting question is how many Fed rate increases to expect in coming years.
Besides higher actual core inflation, we believe higher wage growth and a lower unemployment rate are among the triggers to determine when the Fed hikes the next time in 2017 after the December hike.
We expect the Fed to hike twice a year, i.e. a total of five hikes from now until year-end 2018 (including a December hike).
Markets have now priced in a total of four and a half hikes before year-end 2018 compared with two before the election.
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