It seemed like it was only yesterday that markets were convinced that a hardline Federal Reserve was going to raise its benchmark interest rate by half a percentage point at its meeting less than two weeks away.
That’s because it was actually yesterday. On Thursday, traders in the futures market were almost certain the Fed would take a more hawkish monetary policy stance and doubled down on the quarter-point hike it approved last month.
But a bank explosion And the Cooperative Jobs report later, and the market has changed its mind.
The probability of a 0.25 percent gain exceeded 70% at one point in morning trading, According to CME GroupThis indicated that a momentary phase of Fed-induced panic had passed.
“Overall, the data does not argue for 50 [basis point] rate hike by the Fed on March 22 despite a strong payrolls advance,” said Cathy Bosjancic, chief economist at Nationwide.
Non-farm payrolls increased by 311,000 In February, well ahead of Wall Street’s estimate for 225,000 but still a step below January’s 504,000.
Perhaps more important, average hourly earnings rose just 0.24% for the month, a 4.6% year-over-year gain that fell short of the 4.8% estimate. That’s an important metric for the inflation-fighting Fed, no doubt Friday’s Labor Department report will be watched as closely as next week’s February consumer and producer prices.
“The Fed can take comfort in maintaining one 25% by increasing the labor supply and reducing upward pressure on wages.” [basis point] rate increase,” Bosjancic added. One basis point is 0.01 percentage point.
Economists at both Bank of America and Goldman Sachs said Friday morning that they stand behind their forecast for a quarter-point increase at the March 21-22 meeting of the Federal Open Market Committee. Both banks used the phrase “close call” on their outlooks, noting that the upcoming week’s data will play a big role in the final Fed decision.
“The February report was overall on the soft side,” Michael Gapen, chief U.S. economist at Bank of America, said in a client note. “While payrolls topped our expectations, an increase in the unemployment rate and relatively weak average hourly earnings data point to a slightly better balance between labor supply and demand.”
The shift toward 25 basis points was notable given that at one point Thursday the outlook for a move of 50 basis points was above 70%, as predicted by CME’s FedWatch gauge trading in federal funds futures contracts. he came up with Fed Chairman Jerome Powell’s remarkswho told Congress this week that if inflation data doesn’t ease, the central bank will raise rates faster and more than before.
However, this pricing began during a sharp decline in the stock market and has led to fears collapse of silicon valley bank There may be a sign of transition in the financial sector. The shift toward the quarter-point potential became more pronounced on Friday morning, although trading was volatile and the half-point move was gaining more momentum.
“The move down to the 50 basis point barrier was hard to separate from the collapse of SVB,” said Liz Ann Saunders, chief investment strategist at Charles Schwab. “It has to be in the Fed’s thinking: Is this the thing that’s going to break?”