Why a rate hike could surprise the market in 2020

If jobs market strength persists, Wells Fargo Securities Michael Schumacher isn’t ruling out a 2020 interest rate hike — especially if the Federal Reserve decides to add one more insurance cut early next year.

His call comes less than a week before the year’s final Fed meeting on rates.

“The Fed is not in a big hurry to say ′we’re not quite done easing yet, and by the way, our next move in six or 12 months is a hike or even another cut,′” the firm’s global head of rate strategy told CNBC’s “Trading Nation” on Friday.

Right now, the fed funds futures market is placing a fraction of one percent chance the Fed will raise rates next year. So, a hike would surprise the street.

According to Schumacher, if Washington and Beijing resolve the trade war, earnings improve and the economy keeps growing, the Fed could decide to raise rates toward the end of next year.

He referenced the latest major economic report which came from the Labor department: the blowout jobs report.

The government found November non-farm payrolls grew by 266,000 while the unemployment rate dropped to 3.5%, the lowest level in 50 years. It’s evidence that suggests the economy is stronger than the Wall Street consensus thinks.

“If you look at the average over the last six months, it’s [non-farm payrolls] still plus-140k and change. It’s pretty darn good,” said Schumacher. “Maybe it’s a little bit too good, frankly, as far as print.”

Yet, he acknowledges there are other areas of the economy that are still challenged, particularly manufacturing and services.

“Recession talk is premature. And, the view from our economics team is pretty simple,” Schumacher said. “The U.S. economy is in a pretty good spot.”


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