What the Fed Might Do in 2016

The big question on everyone’s lips right now is whether or not we are going to see a rate hike from the Federal Reserve.

Whether or not the Fed will raise interest rates next month remains to be seen; however, there has been a fairly significant increase in payrolls according to a report released by the Labor Department on Friday.

The payrolls increase of 271,000 was far beyond what had been anticipated, leading many to suspect that economic growth has gained enough pace to potentially pave the way for an increase in interest rates.

The Fed has kept rates extremely low for the past several years, but this most recent jobs report definitely serves to strengthen the case for a rate hike.

Despite the strong possibility that the Fed will abstain from hiking interest rates, there are some individuals such as Federal Reserve chairwoman Janet L. Yellen who believe that a small increase is well within what the economy can handle in its current state.

Michelle Meyer, who works as the deputy head of United States economics at Bank of America Merrill Lynch had this to say on the matter: “Not only was the headline number strong, but there were upward revisions for prior months, the unemployment rate fell and wage growth accelerated.”¹

The labor market has certainly been a hot topic of debate in the run up to the 2016 presidential campaign, so it will be interesting to see how a rate decision from the Federal Reserve affects both the political and economic landscapes.

It goes without saying that the recent job figures have many predicting some kind of rate increase next month – Michael Gapen who serves as chief United States economist at Barclays certainly seems to think so.

Before the employment figures were released, Barclays were of the belief that the Fed would wait until the end of Q1 2016 to adjust interest rates, but now it looks fairly certain that we will see a hike before the year is out.

“The report was so strong and broad-based that it will be difficult to deter them from raising rates. I think the odds are about 80 to 85 percent that they will move,”¹ says Gapen.

Whatever happens, we can certainly expect some exciting price action. Where do you currently stand? Are you bullish or bearish in anticipation of the Fed’s decision?

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