Taxable Money Market Commentary
by Senior Portfolio Manager Patricia Larkin
This is Patricia Larkin with a Money Market Commentary for October, 2015.
- The September employment report was a major disappointment to money fund investors hoping for a 2015 rate hike from the Federal Reserve. The U.S. economy only added 142,000 jobs, well below the consensus forecast of 200,000 and in a further troubling sign, the two prior months were revised downward by a total of 59,000 jobs. And while the unemployment rate remained at a post-recession low of 5.1%, the labor force participation rate, which is used to calculate the unemployment rate, fell to a multi-decade low of only 62.4%.
The dreary employment report brings into question the underlying strength of the economy. While most forecasters were expecting a slowdown from the upwardly revised 3.9% growth seen in the second quarter, both home and vehicle sales, two important indicators of consumer confidence, have been performing well. It now appears that more data will be needed to determine the true pace of economic activity.
- Outside the United States, the economic picture is much murkier. Commodity prices for a wide range of basic materials have fallen sharply, putting significant pressures on economies that are dependent on commodities for an outsized proportion of their GDP. This has led to steep declines in some individual currencies versus the U.S. dollar, which in turn has intensified financial stress on individual companies, many of whom have dollar-denominated debt.
The Federal Reserve has only two Open Market Committee meetings remaining during 2015. Given that the October employment report won’t be released until after the October 28 meeting, it is hard to envision any movement by the Fed at that meeting. That leaves the December 16 meeting as the only real possibility. Many Fed members, including Chair Yellen, had until recently indicated that they still expected a rate increase this year. In fact, President Lacker of the Richmond Fed had voted for an immediate 25 basis point increase at the September meeting. The incoming economic data will take on increasing importance and presumably will have to be surprisingly strong for a tightening to occur this year.
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