© Michael GapenIf the labor market is any indicator on the future direction of Fed rates (and we know it is) then U.S. interest rates are going higher in March.
Or are they? One global investment bank thinks investors should think again.
Barclays Capital is the bank. They’re telling the hawks to slow down in a report to clients on Thursday. Their proprietary labor market conditions indicators showed job market momenturm improved heading into January. Since mid-2016, when momentum slowed due to domestic recessionary concerns, labor market conditions have improved steadily and now stand at levels not reached in a decade, according to analysts led by Michael Gapen in New York.
Strong labor conditions have, in the past, meant a rate hike in the works. But Barclays is being more cautious, even though a Fed funds hike in March is still the base case scenario.
January labor market data indicates that the Fed should keep on its tightening path. But much of the recent improvement in conditions has come from the National Federation of Independent Businesses. What does that mean? That means the NFIB data is a dependent on forward looking hiring managers, who could of course be wrong about a hiring phase going on in the U.S.
Gapen and company at BarCap said they see the strong labor market as “temporary”, which scores some points for those in the market willing to bet against three rate hikes this year.
Here’s a surprise from Barclays: upcoming softness in wage growth and the rise in the unemployment rate likely mean the Fed will remain on the sidelines in March as it awaits further information about the course of fiscal policy.
