Job Numbers Released Post-Fed: The Weekly Market Update

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Wage Growth Accelerating

Wage Growth Accelerating

And so, the Double Feature played out this week. First, we had a decision by the Federal Reserve Board not to raise the benchmark short-term rate at the present time. The markets were expecting this because the Fed had raised rates in December. However, all eyes were on the Fed statement and certainly this statement held out the possibility that they could raise short-term rates at their next meeting in March.

What data will the Fed be looking at in order to make a decision? Actually, the first report was released just two days later. Last week’s jobs report indicated that the economy had added 200,000 jobs in January. The number of jobs added for the previous month was revised upward as well. The unemployment rate came in at 4.1%, which was unchanged. Finally, the focus was upon the wage data, which showed that wages were up 0.3% month-to-month and 2.9% year-to year. The yearly wage increase was higher than expectations.

Why is the wage data important? With the economy humming and the stock market soaring, the Fed is now most concerned with the threat of inflation. And certainly, any increase in the growth of wages is a big component of inflation. The Fed will get to see another jobs report, as well as a revision of the first estimate of growth for the fourth quarter, before they meet again in March. If the numbers are strong, we could see another hike in short-term rates.

The Weekly Market Update

Rates on home loans continued to increase in the past week. For the week ending February 1, Freddie Mac announced that 30-year fixed rates increased to 4.22% from 4.15% the week before. The average for 15-year loans rose to 3.68% and the average for five-year adjustables climbed slightly to 3.53%. A year ago, 30-year fixed rates averaged 4.22%, virtually the same as today’s level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac — “The Federal Reserve did not hike rates this week, but the market views future hikes as a near certainty. The expectation of future Fed rate hikes and increased borrowing by the U.S. Treasury is putting upward pressure on interest rates. The 30-year fixed rate is up over a quarter of a percentage point (27 basis points) from the first week of the year. Rates on 30-year fixed loans have increased for four consecutive weeks and are now slightly above where they were last year at this time.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

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