Since December and the last rate hike, the Dollar Index has continued going down, in the face of increasing domestic and international risks. The FOMC decided to keep interest rates unchanged yesterday, the Fed Funds rate staying in a range of 0.5% to 0.75%. This unanimous decision was expected from market participants, who anticipated a 38% chance of a rate hike in March before the FOMC meeting. After the minutes’ release, the odds of a rate hike in May increased to 52%, and to 75% for June.
The FED minutes don’t contain anything new about the rates direction we can expect in 2017. One can see that all FOMC members now agree on how the decisions made by the new President of the United States will boost growth and inflation.
Gradual rate hikes can be expected
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”, which should stay low “in the longer run”. The FED notes, however, that the data available in the meantime may change its outlook on growth, employment and inflation. FOMC members will therefore continue to monitor economic data on inflation and employment, as well as any international developments that may impact the United States.
Strong labor market
The minutes reads: “the labor market has continued to strengthen and economic activity has continued to expand at a moderate pace” Recently, confidence in the US economy and its outlook has resulted in continued strong gains in job creation, as well as a low unemployment rate.
One of the most important reports on the employment situation in the United States is that of the NFP. Tomorrow, like the first Friday of every month, the US Department of Labor (BLS) will release its NFP report for the month of January. Job creation is expected to increase by 170,000, with an unemployment rate of 4.7%. Do not forget to monitor signs of inflationary pressures on wages, as well as the participation rate.
This report includes different surveys that give a vision of the strength or weakness of the employment situation in the United States. Therefore, it helps investors to have an idea of the strength of the US economy, and to know how American consumers are going to spend their money, and if companies are investing or hiring, which contributes to the American growth.
The NFP report takes into account nearly 80% of the country’s workforce. If the report is positive, it means that more people have a job and therefore receive a salary, encouraging consumer spending – the main factor in US growth (60% of GDP). Similarly, if employment increases it means that businesses face greater labor needs, as they have more orders or are more confident in the future of their business.
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