House Passes Spending Bill, but Government Shutdown Still Likely

In breaking news, the U.S. House of Representatives voted late Thursday to advance a spending bill with money for President Donald Trump’s proposed border wall. However, the bill which includes $5 billion for the wall between the United States and Mexico is not likely to pass the Senate, increasing the odds of a government shutdown after the midnight Friday deadline.

A government shutdown would be the third this year. It would likely last through Christmas and into the new year, at least until Democrats take control of the House on January 3.

Fed Recap

The Fed raised its benchmark interest rate on Wednesday for the fourth time this year, but forecast fewer rate hikes next year and signaled its tightening cycle is nearing an end in the face of financial market volatility and slowing global growth.

In doing so, the central bank said “the labor market has continued to strengthen,” and described job gains as having been “strong, on average, in recent months.”

Furthermore, the Fed is likely to be more data dependent in 2019 as it decides if or when it will raise rates. Nothing is set in stone so labor market reports will become more important. These include the monthly U.S. Non-Farm Payrolls report and the weekly unemployment claims.

Weekly Unemployment Claims

The Labor Market said on Thursday that initial claims for state unemployment benefits increased 8,000 to a seasonally adjusted 214,000 for the week ended December 15. The figure remained near a 49-year low last week, suggesting underlying strength in the labor market and broader economy.

Claims had dropped to 206,000 in the prior week, close to the 202,000 reached in mid-September, which was the lowest level since December 1969. Economists had forecast claims increasing to 216,000 in the latest week.

Furthermore, the four-week moving average of initial claims, fell 2,750 to 222,000 last week. During the week-ended November 24, investors were shaken a little when weekly filings jumped to an eight-month high of 235,000.

Non-Farm Payrolls Impact

Since the Fed is basing its interest rate decisions primarily on the labor market and inflation, it’s not too early to think about the January 4 Non-Farm Payrolls report for December.

Last week’s jobless claims data covered the survey period for the non-farm payrolls component of December’s employment report. Total claims fell 11,000 between November and December survey weeks, suggesting some improvement in job growth this month.

In the last Non-Farm Payrolls report, the unemployment rate was near a 49-year low of 3.7 percent, not too far from the Fed’s forecast of 3.5 percent by the end of 2019. If the labor market continues to strengthen, the Fed is more likely to stick with its current tightening policy.