It’s About Time the Fed Stops Lying!
This year, everyone wants to know if the Fed is planning to raise interest rates. July’s job creation number was revised to 275,000 from 255,000, but the August number again came in below expectations with a 30,000 job creation miss, as the US economy added just 150,000 jobs rather than the 180,000 the market was expecting. Not only did the total amount of new jobs come in lower than expected, approximately 25% of the new jobs were in the food and drinks sector, one of the worst-paying sectors. The gold price jumped immediately, as the previous day the Purchase Manager Index dipped.
All eyes are now on the interest rate decision in September, as even the major banks are thinking the Fed will finally move ahead and hike the most important interest rate by 0.25%.
Despite Credit Suisse and Barclays Bank supporting this thesis, that’s not what the futures market tells us. The futures are indicating that the odds of a rate hike in September are less than 25%.
Even though the Fed seems willing to temporarily hold off on increasing interest rates, it will likely hike at least once this year to find out if any real damage could be done. After the report came out, the yield fell from 1.595% to just 1.55%, a major move for what’s considered to be one of the least volatile government bonds out there.
Summers doesn’t expect a rate hike in September, as it would be surprising to see a rate hike after bad PMI results and worse than expected job numbers. On top of that, it’s just two months before the US election. So a rate hike would likely occur in December, right after the election.
And if the Fed hikes the interest rate, it will only do so to save face.