• Category: News

U.S. March Job Data May Delay Fed Interest Rate Hikes

The U.S. government has released the March payroll report and the numbers are the looking weak. This is yet another reason why policymakers at the Federal Reserve may need to delay interest rate hikes a little longer.

U.S. March Job Data May Delay Fed Interest Rate Hikes

This past March, the report showed that fewer jobs were added to the economy, the lowest since December 2012. Only 126,000 new jobs were added to the economy according the report by the U.S. government. This is quite a significant contrast from figures in the last 12 months where up to 200,000 jobs were added to the economy each month.

Before the Fed can increase interest rates, the economy needs to demonstrate full employment coupled with higher inflation. Presently, the interest rates are almost close to zero. Last month, the Fed Reserve chairperson, Janet Yellen said that they were keen on increasing rates as early as June or as late as September depending on the performance of the economy.

Millan Mulraine, a research strategist at New York-based TD Securities USA LLC said, “This single report will not necessarily result in the Fed changing its view on hiking interest rates this year.”

Mulraine added, “What it will do is weaken the need to raise rates in the middle of the year. The Fed will likely place more emphasis on the next few employment reports to determine whether the slowdown in economic growth and the labor market is just for the short term.”

Before their next meeting in mid-June, policymakers will await two more reports on the state of the labor market. After these reports, they will most likely make a decision about interest rate hikes.

In March, officials at the Federal Reserve lowered their 2015 forecasts for interest rates to 0.625% up from 1.125% in December. Meanwhile forecasts for 2016 fell from 2.5% down to 1.875%

There is a possibility that the Federal Open Market Committee will stop focusing too much on marginal inflation and instead pay closer attention to job data.

Ray Stone, managing director at Stone & McCarthy Research Associates said they are anticipating that the job growth trend will continue and that the FOMC would have to be satisfied with the generally improving employments trends.

In March, the unemployment rate in the U.S. was at 5.5%, which is quite close to what policymakers consider full employment. But, this new report will make it more difficult to predict what the Fed will do given the indication that the job market is still weak.

According to Jim Baird, chief investment officer for Plante Moran Financial Advisors in Michigan, “All this data does is to make the expectations even muddier instead of providing clarity about the next steps the policymakers will take. “

Nevertheless, Karen Dynan, the chief economist at the Treasury Department said, “Domestic fundamentals looks strong. Dynan is optimistic that the U.S. economy is set for an above average growth this year in spite of the weak job data this past March.

 

Market impact

Following the report, the value of federal funds fell from 18% down to 11% in New York. At the same times, U.S. equity futures fell, while Standard & Poor’s 500 e-mini contracts for June slumped by 1%.  Meanwhile, Dow Jones Industrial Average fell by165 points.

 

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