Tags: fed | decision | data | outlook

Fed Decision May Hinge on Which Holds More Sway: Data or Outlook

Fed Decision May Hinge on Which Holds More Sway: Data or Outlook

Friday, 04 September 2015 11:31 AM

The Federal Reserve’s decision on whether to raise interest rates this month is coming down to a simple question: Are policy makers data dependent or outlook dependent?

The flow of economic statistics from the government and elsewhere in the run-up the Fed’s Sept. 16-17 meeting, punctuated by Friday’s labor report, mostly suggests that the first rate increase in nine years would be justified.

Automobile sales have been strong, the housing market is buoyant and joblessness has fallen to a level that most policy makers reckon is equivalent to full employment, even though inflation remains below the Fed’s target.

The outlook is murkier, clouded by turmoil in financial markets, a rising dollar and a shaky global economy, thanks especially to China. That argues for caution in ending an unprecedented era of near-zero interest rates.

“You can’t look at the labor market anymore to justify delay,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York.

“The labor market is giving a green light. The only way they can justify not going is based on inflation or the global economy and the risk of the global economy to the U.S. The data is saying ‘Go.’ The markets are saying ‘No.’”

Employers added 173,000 workers in August and the U.S. jobless rate dropped to 5.1 percent, the lowest since April 2008.

The gain in payrolls, while less than forecast, followed advances in June and July that were stronger than previously reported, Labor Department data showed Friday.

Average hourly earnings climbed more than forecast and workers put in a longer workweek, the report also showed.

Most Fed policy makers calculated in June that a jobless rate of 5 percent to 5.2 percent was the equivalent of full employment, according to projections released after that month’s meeting of the policy-setting Federal Open Market Committee.

Officials will come up with new estimates at this month’s gathering and some private economists are predicting they could be lowered then. 

The uncertainty over what the Fed will do was reflected in trading in the federal-funds futures market in Chicago. While investors marked up the odds of a rate increase this month after Friday’s jobs report, they still put the probability of a move at well below 50 percent.

The odds are also lower than they were before China devalued the yuan on Aug. 11. The surprise move by the world’s No. 2 economy roiled markets worldwide, sending global stocks to their biggest monthly loss in three years and commodities to a 16-year low.

Richmond Fed President Jeffrey Lacker, who’s historically been more inclined toward tighter policy than most of his colleagues, said after delivering a speech Friday that the labor data represented a “good report” that doesn’t change the picture for monetary policy.

He said in the speech that it’s time for the Fed to end its era of zero interest rates.

© Copyright 2020 Bloomberg News. All rights reserved.


   
1Like our page
2Share
StreetTalk
The Federal Reserve's decision on whether to raise interest rates this month is coming down to a simple question: Are policy makers data dependent or outlook dependent?The flow of economic statistics from the government and elsewhere in the run-up the Fed's Sept. 16-17...
fed, decision, data, outlook
477
2015-31-04
Friday, 04 September 2015 11:31 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved