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Business/Finance See other Business/Finance Articles Title: Yellen Just Got a Green Light on Rates Yellen Just Got a Green Light on Rates Posted on November 6, 2015 by Brad Hoppmann The entire investment community was awaiting today’s release of the October employment report — and the numbers definitely did not disappoint. During the month, the Labor Department reported that nonfarm payrolls rose a seasonally adjusted 271,000. The report also contained upward revisions to both the August and September jobs reports. In addition to the much-better-than-expected number of new jobs (consensus estimates were for new job creation in the 182,000 range), the unemployment rate also fell to 5.0% in October from 5.1% the prior month. Today’s print was the lowest unemployment reading since April 2008. Another key component in the jobs data today was the average hourly earnings metric, which rose 2.5% annually in October. The rise in wages is something that we haven’t seen much of recently, but the October metric is a nice rise from the 2% average wage growth we’ve averaged over the past six years. What this October jobs report adds up to is a virtual green light for Fed Chair Janet Yellen & Co. to finally hike interest rates at their December meeting. Whether the Fed actually takes the plunge and hikes in December is by no means a done deal. But certainly the signal from the labor market is that this economy can handle a hike — especially when that hike is likely to be just a 25-basis-point bump in the Federal Funds rate. *** Judging by the market’s reaction to the October jobs report, I think the odds are definitely pointing to a rate hike come December. For example, the yield on the 10-year Treasury note spiked 9 basis points to 2.33%. That tells me the bond market thinks rates are going up. While the stock market did fall a bit in early Friday trade, the major averages moved back into positive territory in late-afternoon trade. When it comes to stocks, there’s a virtual tug-of-war going on. Yes, Wall Street likes access to the cheapest possible money, but it also likes economic growth. If the Fed feels there’s been enough growth to permit it to hike rates after its unprecedented multi-year zero-interest-rate policy experiment, then that is ultimately going to be good for stocks. Now, when I see news like today’s jobs report, I put it in the context of the markets and the economy so that I can take appropriate action for subscribers. The other thing I do — and it is something I recommend all Uncommon Wisdom Daily readers do — is to start thinking about what you can do now, on a personal basis, to prepare for the very real possibility that money will become costlier by the end of the year. *** The way I see it, now is the time to be proactive with your relationship to the cost of capital. This means now is a great time to buy a home, refinance an existing home loan or buy a second home or an investment property. If interest rates are hiked in December, the new cost of borrowing will be just a little bit more than it is today. This may not be a huge amount in terms of percentages, but over time a higher interest rate (particularly on long-term loans such as a 30-year mortgage or a 15-year mortgage) makes a very big difference. Right now, I am putting my money where my mouth is, as I am in the process of refinancing my home in Florida. I also have just started the process of refinancing my second home near Baltimore. By taking action now, and by locking in the very low interest rates banks are currently lending at, I will be able to save thousands of dollars a year on both of my mortgages. And, even if the Fed doesn’t hike in December, this proactive move to lock in a low rate now will not go unrewarded. I mean, it’s not like rates are going to go any lower from here. Mathematically, it’s almost impossible. So, while Yellen & Co. might have received a green light to hike in December, you should read that signal as a green light to lock in cheap money. Post Comment Private Reply Ignore Thread
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