Mar 13 2015
Rate Range Projection by Bank
Next week 120.50- 122.50
Next 3 months 115.00 - 127.00
The US jobs report released was strong across the board and certainly took us by surprise on Friday. A strong US Dollar would have begun to show up in the official data, but that did not occur. We had thought that announced job losses in the energy sector and by multi-nationals suffering between actual layoff announcements and them being captured in the official data and so it will be a matter of time. We should fully expect the next few employment reports to be less robust. With average hourly earnings reversing December’s setback, average weekly hours worked remaining at its highest since the financial crisis and the participation rate rising, the details of the report were very reasonable, although we would note that earnings are still not growing as strongly as should be expected at this stage in the cycle. Clearly a lot that can happen between now and the Summer and, as we have seen so often over the last few years, the Fed will not want to be too hasty in raising rates if economic data deteriorates and/or the equity market falls. This jobs report has altered market expectations for rate rises from the Fed with many now expecting the Fed to raise rates in the early summer. Little has changed on this front. Business investment will fall as the impact from dramatically reduced spending from the energy sector and lower inventory build is seen. We are basing our forecast on both indicators that have leading qualities rather than lagging qualities in terms of their predictive value. We are also trying to incorporate qualitative evidence from the fallout from the energy sector bust and the impact of the strong US Dollar. Of course, we could be wrong and the US economy could be totally unaffected by the issues that we worry about. If so, the Fed will feel compelled to start raising rates soon. We could be wrong and the US economy could be totally unaffected by the issues that we worry about. If so, the Fed will feel compelled to start raising rates soon. However, even if we are only half right, the Fed will have every excuse not to raise rates in the Summer, and the only reason they would do so is to get some rate rises in place so that they have some ammunition if there were to be a downturn in 2016/17.
