Job Growth Likely Adds Fuel to Climbing Interest Rates

Job Growth Likely Adds Fuel to Climbing Interest RatesThe positive June jobs report released Friday fits firmly into the scenario brewing with the Federal Reserve: continued growth in the economy will likely lead to the dialing back of the central bank’s purchases of bonds and mortgage securities.
And that will push interest rates on mortgages and other financial products higher — although much is uncertain as to the pace of increases.
One thing seems certain for consumers. The 30-year fixed rate mortgage may not make a return trip under 4 percent for the foreseeable future. If it does, it will be a short stay.
The U.S. economy created 195,000 jobs in June, beating everyone’s expectations. Furthermore, the number of jobs created in May were revised upward. However, the unemployment rate stayed at 7.6 percent.
The Fed has kept short-term interest rates near zero since the height of the financial crisis in late 2008.
Fed Chairman Ben Bernanke recently said its monthly purchases of $85 billion in Treasury and mortgage bonds could slow later this year. When he repeated the sentiment last month, adding that asset purchases could end altogether by mid-2014, his statement roiled the markets.
In the aftermath, mortgages rates have jumped to near two-year highs, and refinancing applications have plummeted. Although, the housing market remains at a strong recovery level — for now.
“The report was the evidence the Fed was looking for to justify their decision to begin tapering purchases before the end of the year,” Scott Anderson, chief economist at Bank of the West in San Francisco, told Reuters.
The jobs report, combined with strong numbers on housing, auto sales and manufacturing, has made tapering a nearly done deal, economists are saying.
A Reuters poll of bond dealers done after the jobs figures were released found that most of them, including Goldman Sachs and JPMorgan, expect the Fed to begin pulling back on its purchases in September.

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