Why the Fed may raise rates in June

The February jobs report was strong, but markets reacted negatively.

For the employment report, non-farm payroll job growth of February was a better-than-expected 295,000.

The 12-month average jobs growth in the US is an attractive 266,000 per month.


Jobs Machine

Leading job-growth categories in February were bars and restaurants (+59k), professional and business services (+51k), retail (+32k), construction (+29k), and healthcare (+24k).

Manufacturing was up modestly (+9k) while mining declined (-9k).

The unemployment rate fell to 5.5%. The unemployment rate that includes discouraged workers fell from 11.3% to 11.0%.

Equity and debt markets reacted negatively to the jobs report. Investors now think it is more likely the US Federal Reserve will raise short-term rates in June.

Investor Perceptions

In my opinion, I don’t think it is bad thing rate hike expectations are getting baked into stock prices.

Better for investors to react now ahead of a move rather than being surprised later.

With GDP growing somewhere close to 3% and the unemployment rate trending lower, the case to keep short-term rates near zero becomes more difficult.

Photo Credit: Day Donaldson via Flickr Creative Commons