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Fed rate hike is a near lock

by  | Corporate
Posted:     Updated: Mar 13, 2017  13:33 ET
 
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Even before this past Friday’s jobs report, most analysts had the odds of the Federal Reserve raising interest rates this week at about 90 percent.

With another strong labor report, a rate hike is now seen as a virtual certainty.

Rates

The U.S. economy added 235,000 jobs in February, and wages rose solidly for the second consecutive month, the U.S. Department of Labor reported.

“It was hard to nitpick the February jobs report,” said Doug Duncan, chief economist with Fannie Mae. Several industries posted solid gains, and even the hard-hit mining industry added 8,000 jobs.

Housing analysts were most pleased with the continuing gains in construction jobs, where labor shortages have been blamed for slowing down the expected ramp up in new-home building.

In February, the industry added 58,000 jobs, and is up by 177,000 over the past six months.

“The construction-job gains of 58,000 is the best monthly showing in over a decade and implies less bottle-necking to homebuilding in upcoming months,” said Lawrence Yun, chief economist for the National Association of Realtors. Yun said the hiring will boost home sales and indicates that businesses and consumer confidence is running high.

All this means that the Federal Open Market Committee (FOMC) will most likely pull the trigger on an increase in federal funds rate of 25 basis points at its upcoming meeting this week, what would be only the third rate increase in a decade.

The Fed has been closely watching labor and inflation trends. Fed officials have already strongly hinted that a rate hike is coming in March.

“Based on [Chicago Mercantile Exchange] Federal Funds futures prices … before the [jobs-report] release, the odds of a Fed rate increase at the meeting [this week] was already over 90 percent,” said First American Corp.’s Chief Economist Mark Fleming, in his monthly commentary.

“This employment situation report only gives more reason for the Fed to move sooner rather than later,” Fleming added.

The FOMC meets on Tuesday and Wednesday, March 14-15, and Fed Chair Janet Yellen has scheduled a news conference afterwards to explain monetary policy. Market watchers are expecting a total of three rate increases in 2017, with the first for the year coming in March.

Last week, long-term mortgage rates moved up on their own, Freddie Mac reported. Through Wednesday, the 30-year fixed rate mortgage averaged 4.21 percent, up 11 basis points over the prior week. Other key rates also rose.

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Victor Whitman is chief reporter for Scotsman Guide Media. Reach him at (800) 297-6038 or victorw@scotsmanguidenews.com.

Topics: Residential economy | Residential lending
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Fed rate hike is a near lock

by Scotsman Guide Media | Corporate
Posted: Mar 13, 2017  13:32 ET    Updated: Mar 13, 2017  13:33 ET

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