Traders and investors are putting the prospect of the highest US interest rates since 2006-07 back on the map after a blockbuster January jobs report.
Data released on Friday showed the US created 517,000 new jobs last month, far more than the 187,000 expected by economists – given the 5% federal funds rate in a few months. The report “locks in another rate hike” and moves the goalpost to the terminal rate, or level at which the Federal Reserve can end its rate hikes, said Ian Linzen and Ben Jeffery, strategists at BMO Capital Markets. Will give
Traders reacted on Monday by raising the likelihood of a fed-funds rate between 5% and 5.25% by May to 74% versus 60% on Friday, sending rates to 6-month TMUBMUSD06M.
and 1-Year Treasury Bill TMUBMUSD01Y,
has reached close to 5%. Treasury yields rose across the board as all three major US stock indexes, the DJIA,
spx,
The day ended low.
The fed-funds rate currently sits in a range between 4.5% and 4.75% after a quarter-percentage-point increase last Wednesday, and is well above near zero at the same time a year ago as policymakers turned their attention to To fight inflation. The Fed has not raised its benchmark rate target to 5% or more since May–June of 2006; It did not cut rates until September 2007.
“We were all thinking the Fed’s heavy lifting was done and there was light at the end of the tunnel,” Derek Tang, an economist at Monetary Policy Analytics in Washington, said via phone. “What if it’s not the light, but a relentless train of high inflation and demand? The January jobs report tells us the labor market is stronger than we thought and if the Fed doesn’t do something about it We can get more inflation.”
In December, partway through their economic projections, policymakers touted the possibility of a 5.1% terminal fed-funds rate forecast in 2023. However, investors and traders largely dismissed the outlook, as they were counting on the authorities to lose their nerve. The risk of a US recession seemed to be rising. Signs of easing inflation in data released for January through December only add to the idea that the Fed may end its rate-hike cycle soon.
Financial markets are now considering a nearly 97% chance of another quarter-point hike in March, another 74% chance in May and increasing odds of a third rate hike of similar size in June, according to CME Fedwatch. tool.
Despite the Fed’s eight straight rate hikes since March 2022, the January job loss was accompanied by a drop in the unemployment rate to a 54-year low of 3.4%. one percentage point.
Credit: www.marketwatch.com /