Investors will be paying close attention to the February jobs report later this week for signs about the resiliency of the U.S. jobs market before Committee members at the U.S. Federal Reserve convene for their 2 day monetary policy meeting from March 14-15th and consider raising interest rates with the target rate of the federal funds.
Last week, a variety of Fed Committee members spoke in hawkish terms about the prospect of the Federal Reserve raising rates at the Fed’s next March policy meeting.
On Friday Fed Chair Janet Yellen gave a speech in Chicago at the Executives Club of Chicago where she admitted that the prospects for further moderate economic growth look encouraging, especially as risks emanating from abroad appear to have receded somewhat.
Yellen admitted that “the Committee currently assesses that the risks to the outlook are roughly balanced.”
Yellen summarized some of the key events that have swayed the Fed’s monetary policy over the past few years and pointed out that inflation moved up during the second half of 2016, mostly due to the lessening effects of the earlier declines in energy prices and import prices.
Yellen explained that in late 2016 higher energy prices appear to have temporarily boosted inflation, with the total PCE price index rising nearly 2 percent in the 12 months ending in January, and Core PCE inflation running near 1-3/4 percent.
The Federal Reserve has kept the target rate with the federal funds close to zero for nearly a decade, although Yellen acknowledged that she and her colleagues generally anticipate that the neutral real federal funds rate “will rise to its longer-run level over the next few years.”
“This expectation partly underlies our view that gradual increases in the federal funds rate will likely be appropriate in the months and years ahead. Those increases would keep the economy from significantly overheating, thereby sustaining the expansion and maintaining price stability” Yellen said.
Yellen reported that she sees no current evidence that the Federal Reserve has fallen behind the curve, and she still has confidence in their judgment that a gradual removal of accommodation is likely to be appropriate.
Faster Pace of Accommodation Withdrawal
Yellen maintained that “unless unanticipated developments adversely affect the economic outlook, the process of scaling back accommodation likely will not be as slow as it was during the past couple of years” but emphasized that the Fed’s monetary policy isn’t on a preset course.
According to latest reading from CME’s Fed Watcher tool, the prospect of a .25 percent basis point interest rate hike at the Fed’s next rate decision on March 15th is currently set at 79.7 percent, up from 77.5 percent on the previous day.
The Week Ahead
Investors are turning their attention this week to the U.S. non-farm payroll report that will be released on Friday from the U.S. Bureau of Labor Statistics in addition to an ECB monetary policy meeting in Frankfurt Germany for the 19 member eurozone a day earlier on Thursday.
According to economists from Briefing.com, the consensus estimate for February U.S. non-farm payrolls is 188,000 after a robust 227,000 in January.
On Wednesday, private sector payroll processor ADP will release their February U.S. employment report. Economists from briefing.com have a consensus estimate of 180,000 private sector jobs added in February.
Some of the other key economic reports out this week includes January factory orders due on Monday, Trade Balance and Consumer Credit for January due on Tuesday, and the Treasury Budget due on Friday.
Full Economic Calendar
Monday- Factory Orders (January)
Tuesday- Trade Balance (January), Consumer Credit (January)
Wednesday- ADP Employment Report (February), MBA Mortgage Index (3/4), Wholesale Inventories, Unit Labor Costs for Q4, Crude Inventories
Thursday- ECB rate decision Challenger Job Cuts, Import/Export Prices (February), Initial/Continuing Claims, Natural Gas Inventories
Friday- Non-Farm Payroll Report from Bureau of Labor Statistics (February), Treasury Budget (February)
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