Jobs Report Changes Fed View: The Weekly Market Update

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Will They or Won't They

The answer to the question as to whether the Federal Reserve will raise interest rates this week obviously depends upon whether you asked the question on the Thursday before the Jobs Report as opposed to afterwards. Before the jobs report was released, it was expected that there was close to a 50-50 chance of a rate increase. Now the chance of the Fed taking action has been lowered significantly. As a matter of fact, many are now predicting that rates may not go up after the July meeting as well.

The concern over the weak jobs report has not gone unnoticed by the Federal Reserve Governors. Federal Reserve Governor Lael Brainard called for a reconsideration of any potential rate hikes, citing a slowing labor market and continued evidence of global economic instability as reasons for the Fed to keep its foot on the financial brake. Chairperson Yellen had this to say the following week: “This past Friday’s labor market report was disappointing.” Thus, there is good reason for the markets to believe that the Fed will hold off.

We would like to add two points. The markets seem to love any news that would cause the Fed to hold off from raising rates. The Wednesday after the jobs report, the Dow hit the 18,000 level, but then fell back late in the week. Secondly, keep in mind that the monthly job numbers are frequently volatile and subject to major revisions. Even if the Fed does not make a move, there will be another employment report released before the July meeting. While it is not likely the numbers could rebound enough to erase doubts, May’s job numbers might still prove to be an anomaly.

The Weekly Market Update

Rates fell in the past week in response to the weak jobs report. Freddie Mac announced that, for the week ending June 9, 30-year fixed rates fell to 3.60% from 3.66% the week before. The average for 15-year loans decreased to 2.87% and the average for five-year adjustables also fell to 2.82%. A year ago, 30-year fixed rates were at 4.04%%, almost one-half of one percent higher than today's levels.

Attributed to Sean Becketti, chief economist, Freddie Mac --"Growing optimism about the state of the economy was quickly erased with May's employment report. The disappointing release caused an immediate flight to quality resulting in the 10-year Treasury yield dropping 10 basis points on Friday. The rate on 30-year fixed home loans responded by falling 6 basis points to 3.60 percent. This week marks the 10th consecutive week the 30-year rate has averaged under 3.7 percent, allowing an extended window for homebuyers to take advantage of these historically-low borrowing costs."

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.