NFP: A solid report, no obstacle for a hike next week- Danske Bank

According to analysts from Danske Bank, the NFP for February was solid and in line with expectations. They expect the Federal Reserve to rise rates three times during 2017. 

Key Quotes: 

“The jobs report for February was solid and in line with expectations after the strong ADP jobs report released on Wednesday. Employment rose by 235,000 in February (although partly driven by warm weather which boosted construction employment) which was enough for the unemployment rate to fall from 4.8% to 4.7% despite an increase in the participation rate to 63.0% from 62.9%.” 

“The jobs report removes the last obstacle for a Fed hike on Wednesday, in our view, in line with the message Fed Chair Yellen sent in her speech on Friday 3 March. A hike is the consensus among analysts and fully priced in by markets. 

“The interesting question is how many hikes to expect for the rest of the year. Although the FOMC members have signalled a March hike, they have also repeated that they think three hikes are appropriate. We expect the Fed to maintain the ‘dot’ signal for this year unchanged at three hikes in the updated projections. Notice that Yellen in her speech said that four hikes is one too many as it would make monetary policy neutral instead of accommodative and the Fed has signalled that it still wants to support the economy through accommodative monetary policy.”

“We expect the Fed to hike three times this year in March, July and December, as the Fed seems less worried about inflation and has increased its weight on labour market and growth data. We stick to our view that the Fed is only set to hike once in H1 17 but now twice in H2 17 when we get more information about Trumponomics. By hiking at one of the small meetings in July, the Fed shows that it means that every meeting is ‘live’. We expect the Fed to begin the reduction of its balance sheet in Q1 18.”