The U.S. economy didn’t notch a breakout year, but it posted strong enough gains to convince the Federal Reserve it was finally fit enough to handle higher interest rates.
The unemployment rate fell in 2015 to 5% from 5.6%. The workforce expanded by 2.6 million employees. Average hourly earnings of private-sector workers rose 2.3%—not especially robust growth in historical terms, but the steepest of the past six years.
Since 2010, the economy has added an average of just under 200,000 jobs a month. That is a heady clip, but considering nearly 15 million people were unemployed and actively looking for work in 2010—the jobless rate was nearly 10% that year—the labor force faced a very steep climb.
Yet by some measures, the economy this year looked little different from what prevailed since the recession’s official end in 2009. For the sixth year in a row, growth lumbered along at about 2%. Once again, the share of Americans participating in the labor force declined.
“I’m not surprised we’ve had it repeat and wouldn’t be surprised to see it again next year,” said Megan Greene, chief economist of John Hancock Asset Management. Meantime, as the U.S. has slowly gained ground, much of the rest of the world fell behind. China, in particular, is in the midst of a broad slowdown.
Federal Reserve finally makes its move
The Federal Reserve entered 2015 saying it expected to begin raising short-term interest rates by year’s end. With some difficulty, it kept its word.
After the Fed ended its latest bond-buying program in the autumn of 2014, attention turned to when the U.S. central bank would start to raise its benchmark federal-funds rate, which had been stuck near zero since December 2008. Many Fed officials initially expected to move by midyear, but a stretch of weak economic reports convinced them to hold off.
A September rate increase then appeared likely, until worries about the global economy and financial-market volatility prompted another delay.
By late October, Fed officials signaled they were ready to go. A string of strong readings on the U.S. labor market sealed the deal. Last Wednesday, the Fed’s rate-setting committee unanimously voted to boost the fed-funds target range to 0.25%-0.5%.
“We believe we have seen substantial improvement in labor market conditions and while things may be uneven across regions of the country, and different industrial sectors, we see an economy that is on a path of sustainable improvement,” Chairwoman Janet Yellen said.
Still, she emphasized the Fed would likely raise rates only gradually in 2016 and beyond.
