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What the February jobs report means for the upcoming Fed meeting

15 March, 2017, 00:43 | Author: Paula Vaughn
  • Janet Yellen chair of the U.S. Federal Reserve adjusts her glasses during a meeting of the Board of Governors of the Federal Reserve in Washington D.C. U.S. on Tuesday

Locking in a rate before mortgages become more expensive is the best choice at present, as recent developments have pointed at a possible U.S. Federal Reserve rate hike in 2017. Business investment remains low and productivity in the United States, as elsewhere in the developed world, is growing sluggishly.

Fueling the Fed's need to continue pushing rates higher is a slew of improving reports on the health of the USA economy.

The Fed slashed the benchmark interest rate almost to zero during the recession to bolster growth and fight unemployment.

As part of the shift among economists, there's growing concern that economic growth and inflation could go higher than expected, with 55 per cent saying risks now fall more heavily on the upside. The Fed chair is likely to stress numerous points she has made in recent speeches: That while the Fed is raising rates, the pace of the increases will likely remain gradual and that rates will still be at historically low levels.

Ultimately, the Fed issued three rounds of QE (known as QE1 through QE3) before it began the tapering process, which ultimately wound down the QE process to avoid excessive inflation without shocking the larger economy and slowing down growth yet again.

Meanwhile, Bank Indonesia - the central bank of Indonesia - is expected to maintain its benchmark interest rate (7-day reverse repurchase rate) at 4.75 percent after completion of its monthly policy meeting on Thursday (16/03). "Now the entire economy is preparing for the prospect of stronger growth, and the Federal Reserve's policies are falling in line with that perspective". That means the market is expecting three hikes in the federal funds rate this year, with the rate at 1.25-1.5% in December 2017. That's up from two hikes that respondents predicted in a survey in February and now matches the median number of increases that Fed policy makers forecast in December.

"This meeting is not really about whether the Fed hikes. We finally have some signs of tightness in the labor market".

"The February employment report all but confirmed the Fed's view that the U.S. labor market is at or very close to full employment, giving them a bright green light to raise rates at the March meeting and continue its message of further normalization", Yahoo reported Bank of America Merrill Lynch economists Joseph Song and Michelle Meyer, as saying.

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Fed policymakers have a 2 percent inflation target and track a measure that is now at 1.7 percent. "I think it's a little early for that".

"Investors are placing a near 100 per cent chance of a Federal Reserve interest rate hike later this month - the first tightening of monetary policy under the presidency of Donald Trump".

How will the changes impact business?

So rates have risen quickly but they are still low.

"If that was to be the case, then expect longer term rates to rise in New Zealand as well", Brown said.

Some consumers may need to invest in stocks and bonds - and face more risks - if they want to earn higher returns, says Clinton Key, a research officer for Pew Charitable Trusts.

For Curcio, so long as businesses maintain healthy reserves and keep an eye on their debt service, the increases shouldn't prove too much to handle for most entrepreneurs. After all, the Fed is expected to raise by just 0.25% on Wednesday. "That being said, one or two rate increases will not be a high rate".

Westpac's senior market strategist Imre Speizer said the likely hike suggested a belief that the downside risks of 2015, regarding global uncertainties and weak inflation, as well as those of early 2016, with wavering U.S. jobs growth, were in "the rear-vision mirror".

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