U.S. market indexes opened higher on Monday following gains from global markets. The Standard & Poor's 500 opened up 0.90%. The Dow Jones Industrial Average was also up, beginning the day with a 0.90% increase led by General Electric (GE, Financial).
Since August, the Federal Reserve has been dealing with volatile changes globally and now the September jobs report throws another surprise at it. Janet Yellen has been touting a rate increase in 2015, specifically noting in her Sept. 24 speech at the University of Massachusetts that a rate increase would be justified in 2015. However, given the topline number on employment growth in the Bureau of Labor Statistics’ September report that shows a total of only 142,000 jobs added, it would seem that the Fed’s decision on interest rates would likely be swayed. However, most of the damage in September was from the energy and manufacturing sectors, which have not only stalled hiring but have been substantially reducing workers.
For the broader economy, excluding energy from the employment growth analysis shows continued levels of sustained improvement. At this point, the Fed is only looking at a potential 25 basis point increase, and it seems a liftoff from zero in 2015 could setup a stronger path for increases in 2016.
The Fed’s policy accommodations have served their purpose. The housing market has recovered significantly. Furthermore, the broader economy has greatly improved and you see strong growth from the other sectors, excluding energy, so the lower borrowing rates are not as necessary as previously needed. With the third quarter coming to an end, a better indication of the Fed’s direction may be found in the health of corporate earnings which is also an indicator that the Fed does take into consideration.
In a recent interview with CNBC, Goldman Sachs’ chief economist gave his insight on the current market environment and why he thinks it is likely that the Fed will still raise the federal funds rate in 2015.
