Strong Labor Market Fueling a Likely Rise in Interest Rates

Fed Chair Janet Yellen is expected to announce a raise in interest rates this week at the conclusion of the Federal Open Market Committee meeting on Wednesday.

According to the CME Group Fed Watch Tool, traders believe there is a 95% chance the Feds will hike the rates by 100 – 125 bps, marking the 3rd hike in 7 months.

Despite inflation rates shy of the Fed’s 2% goal and mediocre Q1 growth, unemployment is at a 16 year low of 4.3% – below the benchmark the Fed considers to be “full employment”. This continued tightening of the labor pool will likely trigger the Feds will move forward with its plan of three rate hikes for 2017.

However, while economists are very confident the Fed will bump rates on Wednesday, Yellen may also signal a slower approach moving forward. With the on-going political upheaval in Washington, combined with big-ticket campaign initiatives such as health care & tax reform facing road-blocks, it could trigger the Fed to reconsider its forecasted rate increases for 2017 and 2018.

Trading around large economic events, such as a FOMC announcement, tend to trigger increased market volatility. Thus, it’s vital to approach the markets with sound risk/reward measures coupled with protective stops.

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