We had very little economic news last week to move the markets, yet they moved. Both the stock and bond markets were volatile. So besides overseas events which can easily impact our interest rates, where were JMAC’s capital markets team and investors focused?
Dominating the economic news was the release of the Federal Open Market Committee’s minutes from their meeting of September 16/17. In the minutes we see hints that within the FOMC there is a range of opinions about the condition of the economy, and about the appropriate stance of monetary policy. For example, the minutes read, “Most measures of labor compensation showed no broad-based increases in wage inflation. However, business in several Districts continued to report upward pressure on wages in specific industries and occupations….while a couple of participants noted a more general rise in current or planned wage increases in their regions.” A strong labor market will push rates higher as the demand for capital increases and the potential for inflation mounts – but this language from the Fed was not terribly consistent.
Your JMAC AE will tell you that it is not the Fed’s job to tell us where interest rates are going, but it is the FOMC’s job to help stability in our markets. The range in opinions about the stance of monetary policy is seen in the treatment of forward guidance on rates: several committee members expressed concern about forward guidance on interest rates, specifically about the phrase “considerable time.” However, that phrase was retained in the policy announcement issued on September 17.
Yes, at some points rates will go up – they can’t really go down much lower – and some of that will be due to the perceived improvement in jobs. Labor data last week was good. Initial claims for unemployment insurance for the week ending October 4 fell by 1,000 to hit a very low 287,000.
What does it all mean at this point? “Steady as she goes” for rates!