Moving on Up: Fed Rate Hike Odds Improve with July Job Report

July’s job report showed steady growth and stable unemployment rates, just the news many were hoping to add to the pile of data in the September Fed rate hike decision.

Nonfarm payrolls for July were unsurprising at 215,000. Furthermore, the unemployment rate was unchanged at 5.3 percent and average hourly wages grew humbly at 0.2 percent, or 2.1 percent on a yearly basis.

John Briggs, head of strategy at RBS, said, “Using the Fed’s own language—it’s good enough to give us improvement in the labor market, but not strong enough to end the debate.” As previously reported, the market has been fixated on headlines to determine whether the Fed will raise rates for the first time in nine years this September, or wait until December or even later.

RBS data shows that the market futures are reflecting odds of a September Fed rate hike, shifted up to 55 percent from 47 percent before the jobs report. The first full Fed rate hike is priced into December as opposed to January, according to Briggs.

The Fed rate hike decision depends on key reports like the next employment report for August, due out on September 4th. Economists are also closely following the CPI inflation reports and next week’s July retail sales.

While July’s job report was certainly not a disappointment, it was not a remarkable showing either. LPL Financial economist and market strategist put it bluntly saying, “It’s solid, but not spectacular. Whatever you thought at 8:29 a.m., you thought at 8:31 a.m. It didn’t move the needle much. If the Fed is hung up on wages, this is not going to help them. They’re already satisfied with the labor market. They’re good with it.”

The treasury yield curve instantly reflected expectations on the Fed rate hike by flattening, with the two-year yield rising to 0.74 and the 10-year yield steady at 2.22 percent. Overall, this reflects the market’s assumption that the Fed will vote for rate hikes, provided nothing changes significantly in August.

The latest job report may not have been a knockout, but one bright spot was the fact that 15,000 new manufacturing jobs were reported, the best increase since the beginning of 2015. While the data-dependency continues, August will be the final source of market data for consideration when the Fed votes in September.

If you’re concerned about the effect of a potential Fed rate hike, whether it comes in September, December, or 2016, feel free to contact an advisor at Apex Financial Advisors. One of our advisors can help you prepare for market shifts and rate hikes to protect your wealth.