The dollar surged this week on unusually hawkish comments from the doves at the Federal Reserve. The central bank took back the baton of market influence by laying heavy hints about a March rate hike.
Bill Dudley, No. 3 at the Fed, has previously shown his dovish side but now he said there is a “compelling case” for a rate hike. Lael Brainard, a permanent voter also raised expectations. John Williams went even further by saying rates are “abnormally low”. It is rare enough to hear the Fed all singing from the same hymn sheet and also going hawkish is a rarity.
Do they know something?
Special NFP timing
The first Friday of the month is here but the Non-Farm Payrolls report is released only next week for a change. The third day of the month is probably too close to the end of February, the shortest month of the year.
Federal Reserve officials and senior politicians receive critical economic data before the rest of us. This is no secret. The data is usually available to this small group of people a day or two ahead of the publication.
In this case, the data may already be available way before the March 10th release date. It is not too wild to speculate that the BLS has already compiled most of the data. And it would not be too extreme to think that Fed officials have already had a glance at the data.
Wages – the final nail
According to bond markets and analysts, the chances for a rate hike on March 15th have significantly risen. They moved from below 50% to above this threshold. However, there is no “smoking gun” like we had back in December 2015 or December 2016. The Fed did not fully feed us with this message, just gave us hints about moving “fairly soon”, to quote Fed Chair Janet Yellen.
As the Fed enters its “quiet period” ahead of the decision, we are left with economic indicators. The data-dependent Fed will look at the Non-Farm Payrolls report and the wage data in particular.
If the economy is indeed at or close to full employment, the shortage of employees should push wages higher. The annual pace of average earning has climbed during 2016, but it is always two steps forward, one step backward.
In early January we learned that wages rose 2.9% in 2016, a strong figure. However, in February that rate fell back to 2.5%, a significant setback. In addition, that strong December figure was revised down.
Are we about to get a great NFP?
If we combine the hawkish statements of the Federal Reserve and the exceptionally late timing of the NFP report, can we expect a great jobs report?
Will a solid rise in earnings cement a rate hike in March?
What do you think?
More: Currency of the week: EUR/USD: Cautiously optimistic as politics eyed [Video]
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