The U.S. labor market is still shockingly strong, according to the January jobs report released this morning. Indeed, the hot jobs data has sparked speculation that the Federal Reserve won’t cut rates in March, to the disappointment of investors.
What do you need to know about today’s crucial jobs data?
Well, the U.S. economy added a whopping 353,000 non-farm payrolls in January, far higher than projections of 176,500, reflecting an unemployment rate of 3.7% for the third straight month.
The perpetual strength of the labor market continues to baffle economists, many of whom have long anticipated some interest rate-related deterioration in jobs.
Today’s jobs report holds even more weight than usual as a result of Fed Chair Jerome Powell’s surprisingly hawkish sentiment at the Federal Open Market Committee (FOMC) meeting earlier this week. Powell surprised reporters by insisting more data is needed before members of the central bank feel comfortable cutting rates despite strong inflation readings over the past six months.
Powell specifically cited jobs as a metric that may result in an accelerated pace of rate cuts.
“The labor market remains strong. If we saw an unexpected weakening in — certainly, in the labor market that would certainly weigh on cutting sooner, absolutely, and if we saw inflation being stickier or higher or those sorts of things we would argue for moving later,” Powell told reporters on Wednesday.
As such, Wall Street was largely hoping for a “Goldilocks” reading in today’s jobs report. That is, labor data that isn’t so strong that it allows the Fed to continue holding rates at their current restrictive level but not so weak as to reignite recession concerns.
What Does the January Jobs Report Mean for the March Rate Cut?
While today’s jobs beat should stave off any lingering recession concerns, it also gives the Fed plenty of flexibility to keep rates higher for longer as a means of battling inflation. This means the chance of a March rate cut is, unfortunately, low.
According to the CME Group’s FedWatch Tool, interest rate traders are pricing in a roughly 20% chance of a 25 basis-point rate cut in March.
Interestingly, many economists were bracing for a jobs bust this morning. Indeed, preliminary data from private payroll processor ADP, released earlier this week, showed a notable slowdown in private hirings. According to ADP, U.S. businesses added just 107,000 workers in the first month of the year, down from December’s 158,000 reading.
This fueled speculation that the wider jobs market is starting to falter. Though, it’s safe to say today’s report has safely put those misgivings to bed.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
