March 10, 2016
By: David R. Pascale, Jr.- George Smith Partners
Last Friday’s job report for February was encouraging, especially as it showed wage inflation and tightening labor conditions in certain markets. The Fed watches wages very closely, and considers rising wages to be one of its central mandates.
The 10-year T hit 1.90%, up from 1.66% on February 11. With oil prices and other commodities (iron ore, etc.) showing price gains, is inflation finally “back”? This week will feature announcements by the ECB and Bank of Japan. Both institutions need to restore confidence, as recent plunges into negative rates and other untried measures have not instilled confidence in the markets. Most expect more QE from the European Central Bank, but the “style” may be as important as the substance.
Next week’s US Fed meeting will most certainly not include a rate increase (so the 4 raises in 2016 or 1 per quarter is “off the table”). The “dot plot” containing the estimates for future rate increases will be highly scrutinized, to see if the Fed is ready to admit that its “4 raises” was an overstatement and no longer justified.