Jun 082016

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By G. Steven Bray

Friday’s jobs report was surprisingly awful. Markets expected it to show the economy created 162k jobs last month. Instead, we got 38k. Even after factoring out some unusual effects, the report was very weak.

What does that mean for rates? Well, the small chance the Fed would hike short term rates next week seems to have evaporated, and the chances for Jul depend on stronger data during the coming month.

They also may depend on whether Great Britain votes to leave the European Union on the 23rd. Some analysts are predicting economic calamity if the “leave” side wins, and recent polls show it winning by a few percentage points. The true effect probably is closer to some market volatility, but the uncertainty should give the Fed raeson to pause.

Mortgage rates are likely to continue riding the range for now.

One cautionary note about the jobs report: Earlier in the year I mentioned that it was important to watch wage inflation. Wages ticked up again last month and now are up roughly 3% year-over-year. Rising wage inflation could cause the Fed to raise rates later this year in spite of weaker job growth.

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