Market Update: March employment report takes backseat to Fed Chair Yellen

coupledecoratingWhile this morning’s job report was certainly major news for rate watchers, it was Federal Reserve Chair Janet Yellen’s lunchtime speech to the Economic Club of New York on Tuesday that really set the stage for a prolonged low-rate environment. In the speech, Yellen provided some important insight into the Fed’s monetary policy, emphasizing the importance of proceeding “cautiously” with interest rate normalization. Yellen reiterated the importance of the Fed remaining flexible with their policy and that the path to normalization may not necessarily be a straight one. With the so-called “dovish” rhetoric from Yellen, the likelihood of two Fed rate hikes for 2016 is diminishing and one could even make the case that the December hike was a mistake.

The markets reacted as you might expect, with interest rates moving lower and stock prices moving higher. This week we’ve seen the yield on the US 10 year note drop from 1.90% to 1.78%, where it currently sits. Mortgage rates have improved as well with 30 year rates dropping by an average of 15 basis points this week. Equity markets also liked the dovish comments Yellen made, and the DOW Jones Industrial Average is poised to close higher on the week by over 200 points.

The song remains the same in terms of the U.S. employment market and today’s report failed to tell us anything new. The U.S. experienced slightly stronger-than-expected job growth with 215,000 new jobs added. We also saw a small rise in the labor force participation rate, perhaps indicating that workers are more optimistic about employment opportunities. The report was not all positive, with an uptick in the unemployment rate to 5.0% from 4.9% in February. Next week we look forward to seeing the ISM Non-Manufacturing Composite, which will give us an indication as to how the U.S. consumer is doing and possible effects to GDP. With the Employment Report out of the way, that’s really the last piece of data for a while.

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