US jobs data to hold key to Fed’s rate plans

31 Oct 2015 | Author: | No comments yet »

Fed official: Central bank has made no decision on rate hike.

The Federal Open Market Committee, the Federal Reserve’s rate-setting body, opted not to raise interest rates at its meeting last week but suggested that it could still approve an increase when policy makers meet again in December. A busy week ahead on the economic calendar highlighted by the October jobs report and a handful of speeches by influential members of the Federal Reserve.

John Williams, president of the Fed’s San Francisco regional bank, said he wants to study more economic data in coming weeks before deciding whether the economy is strong enough for the Fed to raise its key short-term rate from a record low, where it’s been for seven years. Flatlining wages have helped keep inflation well below the Fed’s 2% target rate despite mostly healthy job creation and a rapidly falling headline unemployment rate.

But inflation has moved farther below the Fed’s target, reflecting a renewed drop in energy prices and further strength in the dollar, which depresses import prices. Futures contracts monitored by the CME Group of Chicago suggest a 47 percent chance the Fed will act before the end of the year, up from 37 percent before the Fed’s last meeting. In the statement following last week’s meeting, the Fed said it could raise rates in December if it sees “some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” “Real estate agents will say the best time to buy is always now,” joked Aaron Jackson, an economics professor at Bentley University in Waltham. New York Fed President William Dudley and Chicago Fed President Charles Evans speak on Monday; Fed Chair Janet Yellen speaks on Wednesday; Fed Vice Chair Stanley Fischer and Minneapolis Fed President Narayana Kocherlakota speak on Friday. Other significant economic reports out next week include: personal income and outlays on Monday; S&P Case-Shiller Housing Price Index on Tuesday; October motor vehicle sales and the ISM Manufacturing index on Thursday.

Lacker said that he thought then that global economic pressures, which had rocked the markets, wouldn’t harm the U.S. economy and that his view had proved correct. Until China’s surprise devaluation of its currency on Aug. 11 sent financial markets into a tailspin, the Fed had been expected to begin raising rates in September.

Mortgage rates have fallen over the past several weeks, slipping to 3.76 percent last week for a 30-year loan, according to Freddie Mac, the government-owned mortgage company. A quarter-point increase on a 30-year fixed-rate mortgage for $250,000 means another $40 in payments every month, said Danielle Hale, a managing director at the National Association of Realtors.

Greg McBride, an analyst at Bankrate.com, a consumer financial website, said the stock market might swing up and down on the day the central bank makes its decision, but when the dust settles, consumer credit rates, such as mortgages, are unlikely to change very much. “That idea of just rushing to buy a house now before mortgage rates go up, the danger there is you leap before you’re really ready,” McBride said. “It’s like getting married because there’s a sale at the bridal shop.” Home equity lines of credit are popular for financing home renovations. He said there’s agreement within the Fed’s policymaking committee that future increases will occur at a very gradual pace that will leave rates low well into the future. After the interview, Williams presented a research paper at the Brookings Institution analyzing the factors that influence what’s called the equilibrium real interest rate. CD rates remain near historic lows, with the average one-year return on a certificate of deposit around 0.3 percent in the Boston market, according to Bankrate.com. A slight increase in the Fed’s rate is unlikely to raise yields much, McBride said, so it would be unwise to purchase a longer-term CD because it could lock savers into a long period of lower-than-inflation returns.

Chris Chen, a Waltham financial planner, said low interest rates have led many investors to abandon savings instruments and income-generating bonds in favor of riskier investments like stocks.

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