US: Narrative of a tight jobs market set to continue - ING

"The narrative of a tight jobs market, where firms are struggling to fill vacancies and pay is pushing higher, looks set to continue. Consequently, households have the cash and the confidence to spend, keeping the Fed on course to raise rates later this year," ING analysts said in a recently published report previewing this Friday's labour market data.

Key quotes

"This time last month financial markets were implying there was a greater chance of an interest rate cut than a rate hike this year. However, a recovery in equity markets, the ending of the government shutdown, and some cautious optimism on the outlook for US-China trade talks now see around 10 basis points of policy tightening priced in for this year. We think this still underestimates the probability of interest rate increases from the Federal Reserve."

"Any slowdown in jobs growth this month is as much due to a lack of available workers as it is to a slowdown in hiring intentions after a bumper end to 2018. With worker pay on the rise and employees feeling secure in their jobs, consumer spending will likely remain firm while adding to inflation pressures in the economy. As such, we continue to look for two more rate hikes this year, starting with a move in late 2Q."