A trader works on the floor during morning trading at the New York Stock Exchange (NYSE) on March 10, 2023 in New York City.
Spencer Platt | Getty Images
It seemed like only yesterday that markets were sure that a tougher Federal Reserve was going to raise its benchmark interest rate a half percentage point at its meeting in less than two weeks.
That’s because it, in fact, was yesterday. On Thursday, traders in the futures market were almost certain the Fed would take a more hawkish monetary policy stance and double up on the quarter-point hike it approved last month.
But one bank implosion and a cooperative jobs report later, and the market has changed its mind.
The probability of a 0.25 percentage point increase rose above 70% at one point in morning trading, according to the CME Group, indicating that a momentary bout of Fed-induced panic had passed.
“In all, the data do not argue for a 50 [basis point] rate hike by the Fed on March 22 despite the strong payroll advance,” said Kathy Bostjancic, chief economist at Nationwide.
Nonfarm payrolls increased by 311,000 in February, well ahead of the Wall Street estimate for 225,000 but still a step down from 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 was below the 4.8% estimate. That’s a critical metric for the inflation-fighting Fed that no doubt eyed Friday’s Labor Department report as closely as it will be watching next week for consumer and producer prices in February.
“The Fed can take comfort in the rise in the supply of labor and the easing of upward pressure on wages to maintain a 25 [basis point] rate increase,” Bostjancic added. A basis point is 0.01 percentage point.
Economists at both Bank of America and Goldman Sachs concurred, saying Friday morning that they are standing behind their forecasts for a quarter-point hike at the March 21-22 meeting of the Federal Open Market Committee. Both banks used the phrase “close call” on…
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