Higher Fed rate is around the corner

marketupdate

Positive employment picture likely means March hike

With ADP and the U.S. jobs report showing big job gains in February, the stage is likely set for an interest rate hike at the March 14 – 15 policy meeting. On Wednesday, ADP’s employment report claimed that businesses added 298,000 new jobs last month. Two days later, the Department of Labor cited a 235,000 increase to nonfarm payrolls. This number was bolstered by the largest jump in a decade for the construction sector, which is currently running hot due to unseasonably warm weather.

Overall, both reports were in line with what the markets have seen over the past several months. Despite the positive numbers—except for hourly earnings, which were sluggish at only .2 percent growth—the report fell short of delivering the blockbuster job report many were expecting, which could have potentially driven rates to much higher levels. While markets have been relatively unchanged since today’s jobs report, industry experts believe these numbers more than justify an increase to the Fed funds rate at the next meeting. Fed Chairwoman Janet Yellen offered this sentiment during a recent speech in Chicago: “At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”

Currently, interest rate futures markets are pricing in a 96% probability of a Fed rate hike this month. Mortgage rates, too, have priced in the hike, with the 30-year fixed rate up to 4.21% from 4.10%, and the 15-year fixed rate at 3.42%, up from 3.32%, according to Freddie Mac. If the economy stays on course, two more rate increases are planned for 2017, so this is the time for prospective homeowners and those looking to refinance or renovate to lock in a low rate!


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