Business

U.S. jobs report signals Fed will raise interest rates

The last word: The upcoming week is huge even though markets have already priced in a Fed interest rate hike. The Fed will also release updated forecasts, including the ‘”dot plot” matrix that visualizes each Fed member’s expectations for the pace of future hikes. US Non-farm Payrolls’ solid reading on Friday reinforced market expectations of Fed rate hike in March. And the response from investors hasnvestors has been something akin to a yawn.

The economy created 9,000 more jobs in December and January than previously reported, the Dept of Labor said.

Fed leaders like Chair Janet Yellen said a rate hike in March would be appropriate if the economy stayed on track.

Economists expect the raising of short-term interest rates to be the first of several this year, after a government employment report released on Friday showed the United States added a healthy 235,000 jobs in February.

Yet no one seems very concerned.

To be sure, the path of rate increases in 2017 could change, according to primary dealers.

What do you think of the reasons why the Fed is likely to increase interest rates?

“Sentiment or optimism on the part of business and consumers has been lifted by the Trump victory, but that’s not quite the same as increased sales”, said Mark Hamrick, a senior market analyst at Bankrate.com, in a note. If the Fed doesn’t lay out the case for four hikes in its post-meeting statement, investors will seek clues from Yellen in her post-meeting press conference and the Fed’s new rate-hike projections.

But now, the economy is widely considered sturdy enough to handle modestly higher loan rates. Unemployment remained flat at 4.7 percent, while average hourly earnings increased by 6 cents to $26.09.

Expect the wage growth to continue to accelerate, Gad Levanon, chief economist for North America at The Conference Board, a global business group based in NY, told the Monitor.

US employers added a robust 235,000 jobs in February and raised pay at a brisk pace – signs that a resilient economy has given many companies the confidence to hire in anticipation of solid growth ahead. Meanwhile, the services share of employment grew from 78% in 1990 to 86% in January of this year.

And the forecast is highly uncertain, since it’s not clear how much of Trump’s plan Congress will approve. As for explaining tightening now rather than waiting until later in the year, “it is better from their perspective to take the opportunity when they have it, when they are confident about the prospects for the economy”, he said. Inflation is now approaching the Fed’s 2% target.

USA corporates have taken advantage of very low borrowing costs over the past decade by loading up on debt, but already there are some tell tale signs they are slowing down.

That said, over the longer term, I continue to believe that the Fed will raise its policy rate more slowly than its rhetoric indicates.

Advertisement

That decline came even as the labor force participation rate rose to 63 percent, a level not surpassed in nearly three years, meaning people who had been on the sidelines, perhaps discouraged from looking for a job, are rejoining the labor market.

U.S. jobs report signals Fed will raise interest rates

Leave a Reply

Your email address will not be published. Required fields are marked *