(Charles Rex Arbogast/AP)
Friday's strong jobs report gave the Federal Reserve the final clearance it needs to raise interest rates at its March meeting.
The economy added 235,000 jobs, beating the forecast for 200,000 jobs.
A month ago, markets saw a rate hike as a low probability, just 28%. The odds are now 100%, according to Bloomberg's world interest rate probability.
The Fed's move is for all the right reasons, amid some rumbles of higher borrowing costs and taking away the stock market's proverbial punch bowl, according to Keith Wade, chief economist and strategist at Schroders, which has $487 billion in assets under management.
Business Insider spoke to Wade about what he's expecting from the Fed next week.
This interview was edited for length and clarity.
Akin Oyedele: There's this idea of higher rates taking the punch bowl away from markets. In the stock market, by most measures, things are overvalued especially since the extra leg up of the Trump rally. Is that a risk on your radar, the idea that the Fed could take the punch bowl away at time when there are already concerns about valuations?
Keith Wade: It is a concern and certainly, a lot of the work we've done on interest rate cycles and the market shows that once the Fed starts [hiking,] investors start being a bit more wary about valuation.
This period of tightening is very much related, I think, to an acknowledgment that the economy is improving. The time to worry is really when tightening is to try and bring down inflation. From what we're looking at, we don't see a big deterioration in inflation expectations.
So, the time for the market to worry will be maybe later on when we do see wages accelerate a bit more. That will be more concerning for the market because that would be a different type of tightening. It will be much more like 'this is not just a benign recognizing that things are getting better, this is a need to slow the economy to bring inflation under control and cool things down.'
Oyedele: After Wednesday, the focus shifts to the pace of rate hikes. What kind of guidance are you looking out for from the Fed?
(Keith WadeSchroders)
Wade:
The most interesting quote from Janet Yellen last Friday was about the pace of tightening.
[Yellen said, "Given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016."]
If you go with the dots, you could get a couple of more rate rises after next Wednesday.