Jerome Powell on Wednesday added a small, but potentially significant, caveat to the hawkish comments he made on Capitol Hill the previous day—noting that no decision has yet been made on the size of March’s interest interest-rate hike.
The Federal Reserve chairman’s comments have markets anxiously awaiting Friday’s February jobs report, along with next week’s inflation data—if they weren’t already.
Traders are now pricing in a 76% probability of a 50-basis-points hike in March, up from 31% a week ago, according to CME’s FedWatch tool. BlackRock now sees the federal-funds rate peaking at 6%.
It’s likely the Fed will need a surprisingly soft jobs number, and/or a significant fall in inflation next week to change that narrative.
The numbers to keep in mind are: 207,500 (the amount of jobs economists expect were added in February); and 5.9% (the level to which they see the annual rate of inflation falling).
Data released Wednesday certainly don’t point to much weakness on the jobs front.
The private sector added 242,000 jobs in February, according to payrolls processor ADP. That was more than the 196,000 expected by economists polled by FactSet. Job openings fell to 10.8 million at the end of January but less than the anticipated 10.6 million, the Labor Department said. Both those data points suggest the labor market is still hot.
There were some signs to the contrary, too—layoffs rose to 1.7 million, the highest in more than two years. But that’s unlikely to be enough evidence to dissuade the Fed from increasing the pace of hikes.
January’s large jobs number set in motion a chain of events that has all but banished the idea that a Fed pause is imminent and caused stocks to pull back.
A similar-sized surprise in the other direction may be all that can stop the 50-basis-points train.
