Rates Improve on March Employment Data
Chair Yellen delivered a magnificent speech on March 27, one of the best-ever by a Fed leader, thinking out loud through all the reasons the Fed should liftoff from 0%. Buried and brief on page 3, reasons not to move: I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably.
Today’s report does not show weakened wages, nor in other reports any weakening of inflation. We did see a weaker ISM manufacturing survey for March, down to 51.5 from 52.9, obviously hurt by a strong dollar. Fed Vice Chair Fischers statement last fall that falling oil prices are an unambiguous benefit, has proven wildly overconfident, the drop not yet stimulating consumer spending but currently shaving jobs. On the happy side we have a slowly but consistently improving housing market, sales up 12% year-over-year, and prices rising at double the rate of inflation. Specifically to gambling on mortgage rate, these extremely low levels are held down by overseas central banks which the Fed sees as artificial – not a signal of US weakness and possibly requiring Fed interception. For now, rejoice in low rates.