REPORT
By Gülbin Yıldırım
U.S. letter, March 13

- U.S. economy added 235K jobs in February

The most important economic development last week was the February employment data released on Friday by the Labor Department. According to the report, non-farm employment in the country increased by 235 thousand, beating expectations of 200 thousand. The U.S. unemployment rate fell to 4.7 percent, in line with the market forecast.

The payroll gains for December were revised from 157 thousand to 155 thousand and for January from 227 thousand to 238 thousand. The economy added almost half a million jobs in the first two months of 2017, the best back-to-back performance since last summer, which signaled steady growth and assured the Federal Reserve of a raise in interest rates soon.

The average hourly wages the Fed carefully watches for inflation were up 0.2 percent in February while markets expected an increase of 0.3 percent.

 

- Will the Fed act for 2017's first rate hike?      

The biggest question of the week is whether the Fed will increase its key interest rate for the first time this year. The critical meeting of the Federal Open Market Committee (FOMC) will begin on Tuesday, March 14 and run until Wednesday, March 15.

An interest rate hike held an 88 percent chance as of Friday, according to the CME        Group, the U.S. financial market company operating the world's largest options and futures exchange.

Fed Chair Janet Yellen will hold a press conference following the release of the FOMC announcement and after updates of quarterly economic projections.

Markets are expected to focus on new interest projections more than the all but certain interest rate hike. Wall Street has slowly grown accustomed to the likelihood of three 25 basis points rate hikes this year. However, signaling a more aggressive tightening path could cause waves across the market.

 

- Data: CPI, retail sales, industrial production

The economic calendar this week is also rich in terms of data releases. The data flow will start on Tuesday with the Producer Price Index and continue on Wednesday with the Consumer Price Index, Retail sales, the Empire State Manufacturing Index and weekly crude inventories.

After the Fed's interest decision, markets will follow housing starts, unemployment claims and the Philadelphia Business Index on Thursday and will close the week with industrial production and the consumer confidence index.

 

- U.S. debt limit expires on Thursday, March 16

This week will also be critical, as the U.S. debt ceiling will expire on Thursday, March 16. In other words, the U.S. Treasury's power to borrow money will expire on March 16 unless Congress acts quickly to raise the debt ceiling. 

Hence, Treasury Secretary Steven Mnuchin on Thursday called on the House Speaker Paul D. Ryan to lift the debt ceiling “at the first opportunity.”

Congress is expected to raise the debt limit but it is not exactly clear if they can agree on the terms before Thursday.

Even though the Treasury will not run out of cash immediately, a delay in raising the debt ceiling could hurt the U.S.' credit rating and cause an increase in borrowing costs.

According to the Congressional Budget Office, the U.S. public debt is rapidly approaching $20 trillion.

 

- Congressional Budget Office can release Republican’s health care bill report

Developments on the American Health Care bill - released by the Republican’s leadership early last week - will also be closely watched. The bill has faced harsh criticism from many, including the largest health organizations in the country and leading Republican senators.

The Bipartisan Congressional Budget Office is expected to release a report this week to detail the cost and impact of the Republican’s American Health Care Act.

 

13 Mar,2017

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