The Federal Reserve Is “Banking” On The Results Of The August Jobs Report
The old song “Try to Remember” is a wistful, romantic tune which invites the audience to recall the good old days when life was simple and mellow. However, this September promises to be anything but mellow when it comes to the Federal Reserve’s monetary policy. When the August Jobs Report is released this Friday, all eyes will be focused on Federal Reserve Chairman Alice Yellen and whether the Fed will resume its strategy of increasing interest rates. Many economists are predicting that if the August Jobs Report indicates strong job growth that the Fed will raise interest rates at their September 20th meeting.
the Federal Reserve’s Important Decision
The Federal Reserve is facing an economic decision that is far from simple because the Monthly Jobs Report is itself quite complicated. Although the Report’s most widely publicized statistic—the actual Unemployment Rate—has traditionally been regarded as a bellwether, the Fed no longer closely monitors the Unemployment Rate. Instead, the Fed will closely scrutinize the August Jobs Report for significant gains in Non-Farm Payroll and Wage Growth to determine its next course of action.
Of course, the Non-Farm Payroll and Wage Growth statistics are also complicated, because these statistics have bounced around all year. Consequently, the Fed is struggling to determine whether or not the economy is truly growing. For the month of August, most economists are projecting modest growth in Non-Farm Payroll in the range of 180,000 jobs. However, if the increase in Non-Farm Payroll exceeds 200,000 jobs and Wage Growth also increases significantly, the Fed may have all the justification it needs to raise rates.
The upcoming Presidential election also presents a problem for the Federal Reserve because the Fed has traditionally tried to remain politically neutral in election years. The Fed would have preferred to raise interest rates last spring, when U.S. economic conditions had shown considerable improvement. However, economic instability in Europe and China forced the Fed to postpone its decision until later this year or beyond. Even if the August Jobs Report exceeds economists’ expectations, the Fed might prefer to wait until after the election to raise interest rates.
Act Now Before Rates Go Up
Home buyers across the country should pay close attention because the Fed has a big decision to make in the coming weeks. When the Fed voted to raise rates last December for the first time since 2006, they sent a strong signal that the U.S. economy had finally recovered. At that time, Chairman Yellen indicated that the Fed wanted to increase interest rates in an incremental fashion so as to minimize the chance of economic disruption. However, more recently, Chairman Yellen has stated that economic conditions appear to have improved enough for the Fed to resume its policy of normalizing interest rates. If you’re in the market for a new home, your decision this September is simple–act now before interest rates go up.