An encouraging report on the U.S. job market sent stocks higher last Friday. In the long run, continued good news on the employment front could help push bank rates higher as well.
What does a job report have to do with savings account interest rates, money market accounts, or CD rates? Well, the impact may be somewhat indirect, but it could be important under current circumstances. Improvement in the job market has been the next sign that economists and policy makers have been looking for as confirmation that the economy is turning around. Not only does economic strength generally bolster interest rates, but in this case the government has been taking extraordinary steps to keep interest rates down to try to stimulate the economy. An improving employment picture would give the government the confidence to back off and allow interest rates to rise to a more normal level.
In addition, while the November jobs report was encouraging, at 10% unemployment the economy is a long way from experiencing wage inflation. That could bring about the best environment of all for bank rates — higher rates, but without inflation rising fast enough to negate the value of those higher rates. The jobs report also strengthened the U.S. dollar, which is more good news on the anti-inflation front.
Of course, any optimism has to be tempered with patience. An improvement in unemployment from 10.2% to 10.0% is hardly a sign of a full economic recovery. It will take time to see if this is a turning point or just one isolated change. It will take even longer for bank rates to start to respond to the strengthening economy. Even so, a positive signal could be the start of a good trend.
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