Fed Meeting and Jobs: The Weekly Market Update

Fed Meeting and Jobs

Big Week Continues

Last week we spoke of “the really big shew” and today is the headline performance — The Presidential Election. First, let’s do a review of the preliminary acts. On Monday of last week, we had a release of the personal income and spending numbers. While they were in line with expectations, the personal spending numbers were especially strong. Taken together with a stronger than expected data on the growth of the economy for the third quarter, the numbers increase the probability of the Federal Reserve Board raising rates in December.

Indeed, when the Fed met and released their announcement on Wednesday, they indicated that they would not be raising rates this month as expected, just a few days before the election. However, the statement clearly indicated that a possible increase was on the table for December. Of course, the most important data was released on Friday after the Fed meeting. The jobs report showed an increase of 161,000 jobs in October. The report also indicated that the September numbers were revised upward by 35,000 jobs and the unemployment rate slipped down to 4.9%. Finally, wages grew at a faster pace, something the Fed is looking closely at.

Taken together with the earlier data we cited, this means that a December rate increase is definitely in the cards. While we are not expecting the results of the election to affect the chances of a rate increase in December, we are pretty certain that the election being over does increase the chances. This is especially true with the Presidential inauguration being just before the first meeting of the Fed next year. Theoretically, a new President in office should not affect the actions of the Fed, but certainly that sort of welcome would be ill-timed.

The Weekly Market Update

Rates reversed course in the last week, rising in the days heading into the meeting of the Federal Reserve Open Market Committee. For the week ending October 27, Freddie Mac announced that 30-year fixed rates rose to 3.54% from 3.47% the week before. The average for 15-year loans also increased to 2.84%, and the average for five-year adjustables moved up to 2.87%. A year ago, 30-year fixed rates were at 3.87%, still more than one-quarter of one percent higher than today's levels.

Attributed to Sean Becketti, Chief Economist, Freddie Mac -- "A jump last week in the PCE -- the price index tracked most closely by the Fed -- raised the prospect that inflation might not be completely dead after all. Investors reacted by driving the yield on the 10-year Treasury to its highest point since June. The rate on 30-year fixed loans jumped 7 basis points to 3.54 percent, the largest 1-week increase in over six months."

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.