Fed under pressure to hike after stellar US payrolls: Capital Economics

Quotes from Capital Economics:

- The 295,000 increase in US payrolls in February (consensus 235,000) and the further fall in the unemployment to 5.5% illustrate that, even if wage growth is still subdued, the Fed can't hang around before raising rates. 

- The downward revision to the increase in payrolls to 239,000 in January from 257,000 is irrelevant when payrolls are still rising at a three-month average of 288,000 a month. The alternative household measure of employment rose by a more subdued 96,000, but a 178,000 decline in the labour force meant that the unemployment rate fell from 5.7% to 5.5%. 

- This leaves it at the top end of the Fed's 5.2-5.5% estimate of the natural rate. In theory, when the unemployment rate is at the natural rate, interest rates should be at the neutral rate of between 3% and 4%. As such, this is quite a symbolic change that increases the pressure on the Fed to hike rates in June. Admittedly, the 0.1% m/m rise in hourly earnings pushed the annual growth rate back down to 2.0%, from 2.2%. But if the Fed waits until wage growth rising, they will be well behind the curve.