The Week Ahead Is the Fed Between a Rock and a Hard

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first_imgThe Week Ahead: Is the Fed Between a Rock and a Hard Place? in Daily Dose, Government, Headlines, News Although the Federal Open Market Committee (FOMC) did not raise the federal funds rate at the April meeting, even with further improvement observed in the housing sector, there has been ongoing speculation about if the Fed would make a move this month.Despite Fed signals and several industry economists pointing to a June increase after April’s standstill, many have pulled back on those forecasts due to disappointing employment data.The most recent employment data from the Bureau of Labor Statistics showed that the labor force participation rate fell by 20 basis points down to 62.6 percent and has fallen by 40 basis points over April and May to offset first-quarter gains, after hitting its lowest level since the 1970s in 2015. Not only did job gains total only 38,000 for May, but March and April totals were downwardly revised by a combined 59,000 jobs down to 186,000 and 123,000, respectively, making the average monthly job gain over the three-month period from March to May a less-than-stellar 116,000.Economists in the mortgage industry also commented on how the employment numbers will affect the Fed’s June decision.“The employment data issued today is the weakest monthly job creation report since September 2010. This greatly diminishes the likelihood of the Federal Reserve raising rates in June, which would be a net positive for housing demand this spring,” Chief Economist Jonathan Smoke said. “But diminishing job growth also raises concern about longer-term demand for housing later this year and into 2017. Although some of this decline could be temporary, the deceleration we are seeing in job creation will eventually impact the pace of household formation. Fewer households being formed will impact the demand for homes, both to rent and to buy.”This was an unqualified dud of a jobs report, with the weakest month of job gains since 2010,” said Curt Long, Chief Economist with the National Association of Federal Credit Unions. “The unemployment rate fell, but for the wrong reason as labor force participation declined for the second consecutive month. As for the Fed, this likely puts an end to the hopes of a rate hike in June, and will probably shift market expectations to September.”If the Fed does decide to raise rates in June, this would be the first time the Fed has raised the federal funds target rate since the historic liftoff in December.Minutes from the April FOMC meeting said, “Participants agreed that their ongoing assessments of the data and other incoming information, as well as the implications for the outlook, would determine the timing and pace of future adjustments to the stance of monetary policy. Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”Yellen spoke recently at the World Affairs Council of Philadelphia and showed that she believes that the Fed will still raise rates this year if and when the economy improves. However, the rate increase at the Fed’s June meeting, which Yellen noted would be “likely,” has been nearly ruled out due to the most recent employment data released last week.”My colleagues and I will make our policy decisions based on what incoming information implies for the economic outlook and the risks to that outlook,” said Janet Yellen, Chair, Federal Reserve. What is certain is that monetary policy is not on a preset course, and that the Committee will respond to new data and reassess risks so as to best achieve our goals.”This week’s scheduleWednesday, June 15Federal Open Market Committee Meeting Announcement, 2 p.m. ESTThursday, June 16National Association of Home Builders Housing Market Index10:00 A.M. ESTFriday, June 17U.S. Census Bureau/HUD Housing Starts8:30 A.M. EST Federal Reserve FOMC Interest rates 2016-06-12 Staff Writerlast_img

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