The Chairperson of the Board of Governors of the Federal Reserve System, Janet Yellen, recently caused quite a debate in the markets with a recent speech indicating that she believed the case for an increase in the federal funds rate has strengthened in recent months. The debate not only centered around whether a rate increase was justified based upon the strength of the economy, but also when the increase might happen. For example, while the latest data have indicated some strength within areas such as consumer spending, we are still talking about an economy which has grown at a 1.0% annual rate thus far this year.
These types of speeches by the Fed are supposed to contribute to the organization’s transparency so that the markets are not surprised by Fed activity such as increasing rates. More often than not, the statements in these speeches just create confusion, especially when the economy’s performance is as muddled as it is at the present time. Yellen did not say a rate increase was coming this month, but certainly the markets saw the possibility of a September increase on the rise.
Certainly, Friday’s jobs report had the potential to go a long way to clarify the situation. While the numbers were not earth-shattering in either direction, the addition of just over 150,000 jobs was certainly not a strong enough showing to increase the chances for a rate hike this month. The growth in hourly wages was also less than expected and without any evidence of wage inflation, the Fed has more leeway with regard to holding off for now.
Source: Origination Pro
September 6, 2016