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 Data released Friday showed that U.S. unemployment dropped to a
six-year low of 5.5 percent last month, within the range the Fed
considers full employment, suggesting that winter weather does not
appear to be derailing the economy as it did last year.
While wage gains were only slight, analysts said the Fed was now
likely to drop a reference to patience on the timing of a rate hike
when it issues a policy statement on March 18. Dropping "patient" in
March would open the door for a June hike.
"To my mind, June has to be on the table. I think it's a live
option," said Richmond Fed President Jeffrey Lacker, a voter this
year on monetary policy. "Given today's employment report, right
now, June would strike me as the leading candidate for lift off," he
said on SiriusXM radio.
Yields on Treasury bonds jumped as investors predicted a more
aggressive series of rate rises. Futures traders saw an improved
chance the Fed would hike at a June meeting, though the odds were
better than even that September was more likely.
"This much stronger-than-expected (jobs) number could push that date
up," said Tracie McMillion, North Carolina-based head of asset
allocation at Wells Fargo Investment Institute. Rick Rieder, chief
investment officer of fundamental fixed income at BlackRock, said
"all signs" now point to a rate rise June or September.
The central bank, which has signaled a first policy tightening some
time around mid-year, has shifted its focus squarely to still-weak
inflation as it mulls when to move. The report showed 295,000 new
jobs but only a three-cent rise in average hourly earnings, which
could give the Fed pause.
While a near majority of the Fed's 17 policymakers have pushed to
have the option of a June hike on the table, the lingering question
is whether unemployment has fallen enough to push up wages and
overall U.S. inflation even as overseas economies battle
disinflation.
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Some policymakers have recently lowered their estimate of this
longer-term unemployment level, despite median Fed forecasts in
January that put it at 5.2 to 5.5 percent. Those forecasts will be
updated at the March meeting.
John Williams, the influential head of the San Francisco Fed and a
centrist on policy, surprised some economists when he said late
Thursday that a rate hike should not be delayed too long for fear of
"drastically" overshooting on inflation.
Last week, Fed Vice Chair Stanley Fischer suggested that the June
and September policy meetings were center stage as his colleagues
debated when to hike rates from near zero.
Speaking at a New York conference, Fischer cited the gap between Fed
and investor expectations, saying a hike could bring a market
"correction" that "will add to the credibility of what we are
saying."
(Reporting by Jonathan Spicer; Additional reporting by Michael
Flaherty in Washington; Editing by Alan Crosby and David Gregorio)
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