Rates and the Fed

The US Fed, I think will remind us that they are still going to be an important ingredient in the market’s performance this year. At this weeks meeting there’s no press conference and I would expect the language in the statement that comes out after the meeting to sound roughly balanced. That’s what we were left with last time the Fed met.

I think there is a low chance of a rate hike this week. I will be listening closely to the language that comes out of Tuesday and Wednesdays meetings for any indications as to the Fed’s March meeting. Remember the Fed has forecast two to three rate hikes throughout 2017.

I don’t think we will see another rate hike until June, but therein lies some potential risk. Most of the focus this week will be on employment but over the course of the week I’m focused on watching inflation.
Wages have begun to rise, and CPI headline inflation crossed 2 percent last month for the first time in two years. We get a couple of important reports this week. There’s a PCE report today and the wage report in the employment numbers on Friday. Inflation data is expected to show continued improvement , and it is expected we will see average hourly wages rise by about 0.3 percent in Friday’s employment report. Consensus on the street is for a 165,000 non-farm payrolls number.

165,00 is pretty similar to what we’ve seen in the last two to three months of 2016. I think the labor markets have gotten tight so it’s going to be difficult to see big gains from here.  The wage numbers are going to be trending higher. They moved in a pretty definitive way last year. We’re at the point in my view, where we’re past full employment and we’ve seen wages rising.

– Will Pimenta, CAVU Investments