Januarys blockbuster US jobs report is likely to strengthen the Federal Reserves determination to raise interest rates above 5% and keep them high throughout the year an outcome investors remain skeptical of.
Fed Chair Jerome Powell on Wednesday saidpolicymakers expect to deliver a couple more interest-rate increases before putting their aggressive tightening campaign on hold, though he didnt push back strongly against markets pricing just one more hike and cuts by the end of the year.
The number today on the jobs report was a wow number, San Francisco Fed President Mary Daly said in an interview on Fox Business Friday, after the data showed job gains far above expectations while unemployment fell.
The Feds December rate forecasts, which showed a median estimate of about 5.1% at the end of 2023, were a good indicator of where policy is at least headed, but Im prepared to do more than that if more is needed, Daly said.
The Federal Open Market Committee raised its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% this week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.
Such a strong employment report probably means at least two rate hikes of 25 basis points, and I wouldnt dismiss the possibility of a 50 basis-point hike returning on some Fed officials radar screen for the next meeting, said Thomas Costerg, a senior US economist at Pictet Wealth Management in Geneva, Switzerland.
tl;dr rate hikes didn't make enough people unemployed
Market pros weigh in on the whopping 517,000 new jobs created last month and a drop in the unemployment rate to 1969 levels.
"The January jobs report basically leaves one speechless. It's hard to make out what is going on given that companies anticipate at least a mild downturn. Not laying off workers due to shortages is one thing, but cranking up your staff is quite another. Still, we could see some payback next month. Layoff announcements soared in January to above 100,000, about double the norm, and not just in the technology sector. Nonetheless, today's report does raise serious doubts about whether the economy is slipping into recession. Of course, if job growth remains strong and labor markets tighten further, this will compromise the Fed's goal of restoring price stability, leading to several more rate hikes that would ultimately be the economy's undoing." Sal Guatieri, senior economist at BMO Capital Markets (opens in new tab)
"The labor market continues to surge where the index of payrolls, hours worked and wages up impressively in January. Bottom line, the Fed is not done!" John Luke Tyner, portfolio manager and fixed-income analyst at Aptus Capital Advisors (opens in new tab)
"The surprise nonfarm payroll employment report for January, up 517,000 and the 3.4% rate of unemployment, while excellent news for the U.S. economy, is probably not good news for the markets and definitely not good news for the Federal Reserve (Fed), which wants to see employment weakening considerably before it concludes its interest rate increase for this monetary tightening cycle. This report will probably guarantee at least two more 25 basis point increases in the federal funds rate, one in March and a second one in May of this year." Eugenio Alemn, chief economist at Raymond James
Repeat:
while excellent news for the U.S. economy, is probably not good news for the markets and definitely not good news for the Federal Reserve (Fed), which wants to see employment weakening considerably before it concludes its interest rate increase for this monetary tightening cycle.
"While the Fed's medicine has been working, as inflation has dropped sequentially over the latter part of 2022, the biggest challenge for the Fed has been the tight labor market.
This extraordinarily strong number may very well prompt the Fed to continue to hike rates, or at best take a longer time before cutting them. The markets have had a strong rally in January with hopes that the Fed is close to concluding its hawkish program of higher rates
this is certainly a setback. It is ironic that so many large companies have announced significant layoffs (FedEx, Amazon, 3M, Google, etc), yet the jobs market continues to grow and tighten, as small business continues to hire at a strong pace."
Eric Diton, president and managing director of The Wealth Alliance