Tomorrow I’m looking to see the Federal Reserve signal, through its Dot Plot survey of opinion at the Fed, that it is looking for three interest rate in increases in 2016–that would be down from the four signaled in December but up from the one increase now priced into the futures market.
Yesterday, financial markets fell as traders and investors decided that the policy changes–another 10 basis point cut to deposit rates and an increase of 10 billion euros a month in asset purchases–weren’t enough, especially in the face of lower forecasts for inflation and economic growth from the central bank. Today, financial markets seem to have decided that they’re reason to rally.
U.S. stocks have gone into a holding pattern today as everyone frets that tomorrow’s jobs report for February could be strong enough to push the Federal Reserve to a more aggressive schedule for interest rate increases than the market has assumed until very recently.
Every bit of good news just makes it more likely that the market will raise the odds for an (following the December 2015 increase) interest rate increase in 2016. That’s a big deal since this rally has been fueled by a growing consensus that the Fed will raise rates only once more in 2016–late in the year–or maybe not at all until 2017.
Forecasts that the U.S. is headed into recession took another lump from the economic data with today’s release of the showing that initial claims for unemployment fell by 7,000
Despite the “nothing much new” nature of Yellen’s testimony–I guess markets just needed to hear her say it again–U.S. stocks rallied with the Standard & Poor’s 500 stock index up 1.11% as of 11 a.m. New York time
The most important number in this morning’s jobs report was the gain in hourly earnings. Average hourly earnings rose at a 2.5% year over year rate in January
I do know that markets that offer two alternatives both of which lead to lower stock prices aren’t my favorite occasions for putting money to work.
