Hike And Seek

Image source: Alexander_P - Shutterstock, Midjourney

What's going on?

Friday’s US jobs data could help spy out any upcoming interest rate moves.

What does this mean?

The monthly jobs report is always a hot topic for economists, and that’s no wonder: when businesses thrive and up their headcounts, it usually means the sun’s shining on the economy too. And lately the jobs market has been sizzling – but there’s a catch: pesky wage growth that adds fuel to inflation’s fire. That’s been a headache for the Federal Reserve (the Fed) in its battle against price rises. So with economists predicting that nearly 250,000 jobs were added last month, keep an eye on how Friday’s real numbers stack up: they might offer an insight into the Fed’s next move.

Why should I care?

For markets: Expecting the expected.
The labor market has shown signs of cooling off, mind you, with data out this week revealing that February had the fewest job vacancies since 2021. Given that companies often freeze hiring before layoffs, that could hint at changes in the broader jobs market. If that’s the case, and if Friday’s numbers do miss expectations, the Fed might hold off on raising rates to avoid the risk of triggering an outright recession. In fact, ever since the job openings data came out, markets have been betting the Fed won’t hike rates at all next month.

The bigger picture: One hike to end them all.
If job growth does exceed expectations again, another 0.25-percentage-point hike could be on the table. But the Fed’s already dropped some serious hints that rate hikes are nearing their end, forecasting that it’ll fire off just one more volley this year. And with all the recent banking turmoil, anything bigger seems unlikely, unless the job numbers are truly jaw-dropping. The real risk, then, could be the Fed keeping rates high for longer than investors expect – which could hit corporate profits and stocks hard in the long run.

Originally posted as part of the Finimize daily email.

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