31 Jan The Fed Provides What Investors Were Hoping For
Financial markets got exactly what they were hoping for yesterday, with the Federal Reserve removing the language of “gradual rate hikes” from their dialogue. This came as a surprise to many economists who were expecting to see four rate hikes in 2019. Based on this, we can expect to see the Fed hold rates at current levels until there is enough economic data to support making a change in one direction or the other. Given the unknown implications of Brexit, the trade war with China, ongoing investigations into President Trump’s election and the implications of a government shutdown, I believe we will see rates have more stability, at least through March. This is great news for homebuyers looking to move when the purchase season heats up.
Tomorrow is another big day for the financial markets, with the Bureau of Labor Statistics (BLS) set to announce their estimates of new job creations in the month of January. Despite a strong report out of ADP, markets are only expecting to see a number around 158,000. This is well below the current trend of job growth. However, there are many factors this month that could have taken a toll on the labor market. For one, there were many private companies significantly harmed by the government shutdown. This could have adversely impacted the growth rate of new hires in January. Further, the first quarter of a new year generally doesn’t support strong growth. Therefore, this report could come in low.
Although the bond market is performing well today, the risk of tomorrow’s report is high. Given the risk, I’m going to maintain a locking bias.