CHENNAI: With job growth in the United States slowing down for the third straight month in September, fears of a Fed rate hike and the chaos it could unleash in the markets, including those in India, abated a bit. But late night indications from US Government officials seem to indicate that the slowdown is not serious enough to put off a rate hike in December.
A hike in US interest rates by the US Federal Reserve is expected to lead to a phase of increased market volatility, especially in emerging economies. While experts have pointed out that such a move would not impact India much, short term volatility is still a distinct possibility. Another negative from a Fed rate hike could be foreign institutional investors withdrawing some of their funds parked in the Indian markets.
Reuters reported that Fed Vice Chair Stanley Fischer said that the job report was close to ideal for the US economy, with employment growth neither too fast nor too slow.
“The participation rate went up, the unemployment rate went up - those two things are fine,” Bloomberg reported Fischer as saying at a banking conference on Friday.
While his statement did not touch specifically upon a rate hike, Fischer’s position is consistent with indications that there could be one in December.
US Federal Reserve Chairperson Jane Yellen had said last month that the Fed will likely raise rates once this year.
The Fed has two meetings coming up in 2016 — one in November and another in December, and while a rate hike in November is unlikely due to how close it is to the US Presidential election, the jobs report of Friday could be deemed an indication of there being enough room for a rate hike in December.
Indian markets were muted in the run up to the release of the jobs report, with both the Sensex and the Nifty declining slightly. Sensex settled 45 points lower than Thursday’s close, while Nifty fell 11.97 points.
Part of the reason attributed to their sluggishness is that investors were being cautious ahead of the release of the US jobs data.