Blizzard likely won’t delay Fed from raising rates

The implied probability of a Fed rate hike has jumped to almost 100 per cent after Fed Chair Yellen said that a further increase in short term interest rates was likely to be appropriate at the Fed’s policy meeting on March 14 and 15 if employment and inflation continue to evolve as expected. “Businesses need to see a rise in demand before deciding to boost their employment”. The number of Americans employed part-time for economic reasons- otherwise known as involuntary part-time workers-fell from 6,226,000 to 6,106,000 and the quality of jobs created this month showed improvement.

The construction industry led the way higher with an increase of 58,000 jobs, while the manufacturing and mining sectors added 28,000 jobs and 9,000 jobs, respectively.

By province, British Columbia, Saskatchewan and Manitoba added jobs, while there were fewer people working in Nova Scotia and in Newfoundland and Labrador.

“We’re just at a different place now than in 2013 when there was a lot of angst and uncertainty about the economy’s prospects”, said Mark Zandi, chief economist at Moody’s Analytics. “Wages had been the one sore spot in the labor market data, and I think that’s coming through here”.

Some measures of inflation have been edging up as well – although the Fed’s preferred measure of year-on-year price growth remains below its 2%. Average hourly earnings for private-sector workers rose 0.2% in February from the prior month and wages were up 2.8% from a year earlier.

First off, that’s the overall number.

Wall Street has slowly grown accustomed to the likelihood of three rates hikes this year.

One could argue, of course, that getting Government finances in order after such a deep recession was necessary and that slower than optimal growth was a small price to pay, but whatever the merits of the policies, the effect was to leave central banks carrying the can.

On top of that, keep in mind these figures are not adjusted for inflation.

The US 10-year treasury bond will get to at least 3 per cent, up from around 2.5 per cent. Donald Trump’s plans to spend a billion dollars on infrastructure, lower corporate taxes and fight his best to keep jobs in the U.S. revived inflation expectations in the USA and across the globe.

“This process will take time, however, and the Bank of Canada will want to continue supporting it and will likely be reluctant to raise rates until well into next year”.

All up U.S. shares aren’t as attractive as they once were but what will help limit any savage sell off is the upbeat United States economy and the better numbers slated to come from the global economy. Maybe they’ll be different, but by how much?

But four rate rises is based on an erroneous reading of the health of the USA economy – it is not running at a 3% plus growth rate would indicate, based on the stepped up level of jobs creation in the winter and the rise in wages.

What do you make of this jobs report? Tell us your thoughts in the comments or join the conversation on Twitter.