Tags: jobs | federal reserve | lacker | rate hike

Jobs Report Clears Way for Fed to Plot June Rate Hike

Friday, 06 Mar 2015 02:50 PM


America's tumbling unemployment rate and better-than-expected job gains in February should give Federal Reserve officials confidence to pave the way this month, though not commit, to an interest rate hike in June.

Data released Friday showed that unemployment dropped to a six-year low of 5.5 percent last month, within the range the Fed considers to be full employment, suggesting that winter weather does not appear to be derailing the economy as it did last year.

While wage gains were only slight, analysts said the Fed was now likely to drop a reference to patience on the timing of a rate hike when it issues a policy statement on March 18. Dropping "patient" in March opens the door for a June hike.

"To my mind, June has to be on the table. I think it's a live option. Given today's employment report, right now, June would strike me as the leading candidate for lift off," Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday.

Lacker, a voting member on the Fed's policy setting committee, was speaking on the Business Radio program on SiriusXM satellite radio.

Futures traders saw an improved chance the Fed would hike at a June meeting, though the odds were better than even that September was more likely.

"This much stronger-than-expected (jobs) number could push that date up," said Tracie McMillion, head of asset allocation at Wells Fargo Investment Institute, in Winston-Salem, North Carolina.

The central bank, which has signaled a first policy tightening some time around mid-year, has shifted its focus squarely to still-weak inflation as it mulls when to move. The jobs report showed 295,000 new jobs but only a three-cent rise in average hourly earnings, which could give the Fed pause.

While a near majority of the Fed's 17 policymakers have pushed to have the option of a June hike on the table, the lingering question is whether unemployment has fallen enough to push up wages and overall U.S. inflation even as overseas economies battle disinflation.

"All signs point to the Fed beginning its normalization of rates, with an initial policy rate increase, either in June or in September, and we are quite convinced it will occur this year," Rick Rieder, chief investment officer of fundamental fixed income at BlackRock, said after Friday's data release.

Some Fed policymakers have recently lowered their estimate of this longer-term unemployment level, despite median Fed forecasts that put it at 5.2 to 5.5 percent in January. Those forecasts will be updated at the March meeting.

John Williams, the influential head of the San Francisco Fed and a centrist on policy, surprised some economists when he said late on Thursday that a rate hike shouldn't be delayed too long for fear of "drastically" overshooting on inflation.

Fed Vice Chair Stanley Fischer suggested that the June and September policy meetings were center stage as his colleagues debated when to hike rates from near zero.

Speaking at a New York conference last week, Fischer cited the gap between Fed and investor expectations, saying a hike could bring a market "correction" that "will add to the credibility of what we are saying."


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America's tumbling unemployment rate and better-than-expected job gains in February should give Federal Reserve officials confidence to pave the way this month, though not commit, to an interest rate hike in June.
jobs, federal reserve, lacker, rate hike
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2015-50-06
Friday, 06 Mar 2015 02:50 PM
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