The Fed Will Be Watching: The Weekly Market Update

Jobs in Focus
Jobs in Focus

Jobs in Focus

The minutes of the Federal Reserve's January meeting were released the week before last. These minutes indicated that the Fed is comfortable that an expansion with “substantial underlying economic momentum” could sustain additional increases in interest rates this year. This statement was of no surprise to the markets, as rates have been increasing for several weeks now in anticipation of action by the Fed due to a strong economy.

With the next meeting of the Fed just two weeks away, obviously this statement heightens the possibility of a rate increase announcement at the March meeting. A rate increase at this meeting is not a certainty, but it definitely could happen. What could keep the Fed from holding off at this late juncture? The volatility of the stock market could be a factor, especially if additional drops become precipitous. Additionally, late economic data showing the economy is not as "hot" as expected would be taken into consideration.

The most important data is to be released this week. The jobs report is the first reading of data for February and is watched closely by the Fed. The Fed will be watching both the amount of jobs created, but also will be looking for any signs of stronger wage inflation. We may actually need a disappointing jobs report with no acceleration of inflation to convince the Central Bank from holding off at this point.

The Weekly Market Update

The rise in rates for home loans continued at a slower pace in the past week. For the week ending March 1, Freddie Mac announced that 30-year fixed rates increased to 4.43% from 4.40% the week before. The average for 15-year loans rose to 3.90% and the average for five-year adjustables fell to 3.62%. A year ago, 30-year fixed rates averaged 4.10%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "Optimistic testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell sent Treasury yields higher as Powell stated his outlook for the economy has strengthened since December. Following Treasurys, the 30-year fixed rates jumped 3 basis points in this week's survey. The 30-year rate has been on a tear in 2018, climbing 48 basis points since the start of the year and increasing for eight consecutive weeks. We think that the strength in the economy and pent up housing demand should allow U.S. housing markets to post modest growth this year even with higher interest rates. We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust despite these rate increases."

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.