Market Report: On Track For Rate Hikes?

Expectations this week continue to point toward a September interest rate increase, supported by Friday’s jobs report.

The Labor Department said Friday that the U.S. economy created 215,000 net new jobs in July with a nationwide unemployment rate unchanged at 5.3%. The numbers illustrate a stable job market, no longer adding jobs at last year’s more rapid pace, but still churning along at a decent pace.

Is this enough to justify what is now a widely held belief that the Fed will hike rates in September?

Depends on who you ask. Many believe the threat of asset price bubbles and inflation make it an ideal time to begin rate increases, even if job growth is merely adequate.

“A similar report for August … would likely be enough to seal the deal for a mid-September rate hike,” Gus Faucher, senior economist at PNC Financial Services Group, told the Los Angeles Times.

However, some objectors continue to point to slow wage growth and global concerns as reasons to postpone rate increases.

“This morning’s report was hardly suggestive of improvement,” Lindsey Piegza, chief economist at Stifel Fixed Income, told NPR on Friday. “Status quo is hardly a step in the right direction, making it difficult for the Fed to justify a near-term rate increase.”

Still, consensus believes Friday’s jobs report supported the expected September rate hike. 

Here’s one more point to keep in mind as rate hikes are contemplated: When rate hikes begin, they have historically continued quickly. In the last Fed tightening cycle (2004-2006), the Fed raised rates 200 basis points in the first 12 months of the cycle and 425 basis points over 25 months.

Will refinance rates be 200 basis points higher at this time next year?


NikkiBy Nikki Vasco | Chief Investment Officer | FullCapitalStack