By: Dr. Lynn Reaser
February’s jobs report brought some great news. Despite record snow levels on the east coast and port stoppages on the west coast, companies added nearly 300,000 new jobs. The jobless rate fell to 5.5%, a level many economists have pegged as representing close to full employment.
Financial markets were not happy. Both stocks and bonds sold off over fears that the Federal Reserve might be moved to quickly boost interest rates. How close might a rate hike be?
The Fed has indicated that no rate hike will occur before June. The first increase seems likely between then and September. February’s jobs report was robust, but wage growth is still sluggish, inflation is well below the Fed’s 2% target, and growth in real gross domestic product (GDP) appears to have been soft this quarter. The economy rarely moves in a straight line. Momentum appears to be building but could be derailed by lagging productivity, a stronger dollar, or weak conditions abroad.
Higher interest rates seem probable this year, but the Fed will be cautious in launching the first hike.