By Barbara Hagenbaugh and Sue Kirchhoff, USA TODAY
Sharp job gains in March are leading economists to bump up their expectations
for when Federal Reserve (news - web sites) policymakers will increase
interest rates, but rates likely will still remain near historic lows
Employers added 308,000 jobs last month, the biggest percentage gain
since May 2000, the Labor Department (news - web sites) said Friday.
The department also revised up its job estimates for January and February.
"This solidifies the likelihood that we're on track for a strong
economy," says William Hummer, chief economist at Wayne Hummer
Investments in Chicago.
While he doesn't expect the job numbers to be quite so strong month
after month, Hummer says the report increased the likelihood Fed officials
will raise interest rates this summer. Previously, expectations were
the Fed would wait until late 2004 or even until 2005 to act.
Investors who try to predict Fed actions were betting Friday that U.S.
central bankers will raise interest rates in August, up from the prior
prediction of November, according to Economy.com. Bond prices sank Friday,
leading to higher yields - which move in the opposite direction of prices
- as investors began to price in Fed moves.
"If you get another couple of months like this ... then the Fed
starts to itch to make a change," Mortgage Bankers Association
economist Doug Duncan says.
But even if the Fed moves earlier, it doesn't mean rates will rapidly
shoot up. The Fed's target for short-term interest rates, which influences
borrowing costs across the economy, is 1%, the lowest since 1958. Even
if the Fed increases rates a few times in 2004, they will still be low,
Plus, Fed officials have shown little worry that inflation is percolating,
the main prerequisite for sharp rate rises.
Expectations for interest rate gains could lead to higher mortgage rates.
But the National Association of Realtors, which expects homes sales
this year to be near 2003's record pace, has already built higher rates
into its forecast.
"People may have missed out on the rock-bottom rates, but rates,
even with the increase, are very low," National Association of
Realtors economist Lawrence Yun says.
President Bush (news - web sites) credited tax cuts for the improving
job market, which has become a hot election-year issue, in his weekly
radio address Saturday. "Our economy's momentum is building,"
Democratic Sen. John Kerry (news - web sites) said one month of big
gains wasn't enough. "For too many families, living through the
worst job recovery since the Great Depression has been, and continues
to be, far too painful," he said in a statement.
Are my electronics and computers deductible?
AT&T plans return to wireless business
Bank of America to Cut 12,500 Jobs
Commerce Secretary calls economy strong
Economy, earnings hopes nudge European stocks up
Fed OKs Manulife-Hancock Merger Proposal
HUD Takes Mortgage Simplification Plan Back to Drawing Board
Services Index Hits Record High in March
Spike in Past-Due Credit Card Accounts Reflective of Nation's Debt
Stocks End at Month-Long Highs
Struggling workers hoping to bail when economy improves
Treasuries Hit by Services, Jobs Data
U.S. mortgage bonds stumble near three-month low
Vast US services hits record speed in March