Today's article discusses the Fed's decision to hike interest rates for the second time in the last ten years last Wednesday. It's believed that this action heralds an improving economy as well as the strengthened labor market. Keep reading for more information about this hike as well as the projected rate hikes to come in 2017.
Topics: Federal Reserve
As concern grows about the Federal Reserve's credibility, their leaders appear to be poised to raise interest rates. There is dissent within the ranks, as three of the 12 voting members on the Fed's committee voted in favor of increasing interest rates at their September meeting when it was ultimately decided that interest rates would stay put. This is considered an unusually high amount of discord.
Topics: Federal Reserve
Yesterday, the Federal Reserve pledged to remain "patient" before raising interest rates, leading the Dow Jones Industrial Average to its biggest one-day gain so far in 2014. While Fed Chairwoman Janet Yellen continued to stress that the decision is "completely data-dependent," the general consensus among policymakers and market participants is that we will see the first rate hike sometime in 2015. Two of the primary determinants in the Fed's decision are currently at odds.
Friday's jobs report contained the usual amount of mixed signals, but overall demonstrated underlying strength. As for the positives:
As we enter the tail end of 2014, the economy is still doing better than practically any time in the last five years. The Philly Fed's general business activity index rose sharply in the third quarter, suggesting that fourth quarter growth should be solid. Below I list items that are moving the markets and are important factors for investors to continue to consider.
This morning, our own Bob Phillips joined The Wall Street Journal Radio Network with host Mathew Passy to discuss the top financial news and lend his outlook on the economy. Bob pointed out that, in anticipation of the Fed's meeting today, markets are in a wait-and-see mode as Wall Street awaits information on QE ending and the fate of interest rates. He offers additional insight to investors and what can be expected as 2015 approaches.
Friday's jobs report indicated continued improvement in the labor market, with the unemployment rate falling to 5.9 percent, a six-year low. Payrolls increased by 248,000 in September, above earlier forecasts of 215,000. In addition, the change in August's payrolls was revised upward by 38,000. With Friday's report, 2014 is on track to be the best year for total job growth since 1999, which is no doubt an impressive statistic. Despite these positives, there were also a few sore spots. The participation rate decreased 0.1 point to 62.7 percent, caused by an increase in the number of people not in the labor force, and the year-over-year growth rate in average hourly earnings fell 0.1 percent to 2 percent. In other words, while there continues to be strong gains in employment, wage growth continues to remain subdued.
Friday's employment report showed a solid 209,000 increase in payrolls. This marked the sixth consecutive month of gains over 200,000 -- the longest such streak since 1997. In addition, the prior two months of data were revised upward by a total of 15,000. Despite the gains, the unemployment rate increased slightly from 6.1 percent to 6.2 percent. This was due to an increase in the number of people re-entering the workforce, a positive sign.
I have received some questions from clients about a recent report from Barron's pointing out that an analyst is predicting a large drop in companies buying back shares in the second quarter of 2014, compared to the first quarter of 2014. The article suggested that we could see the second quarter drop by one-third of quarter one's total purchase amount. The first quarter of 2014 was one of the best periods on record as seen in the graph further down in the post.
Today, I would like to discuss some new developments regarding short-term unemployment, a topic I have covered in the past. My last article outlined the debate over whether short-term unemployment is a better gauge of labor market conditions than the overall unemployment rate. It appears this debate is heating up, with The Wall Street Journal reporting that it could become "an important battleground in the central bank's coming discussions about how long to continue its low-interest-rate policies."