Federal Reserve Chairman Jerome Powell said this week that the central banker would consider increasing the pace of interest rate hikes again if February’s economic data showed a stronger-than-expected economy and higher inflation.
This leads to the next obvious question – is there an exact number of net job gains that will warrant a half-percentage point hike at the March 21-22 meeting?
Unfortunately, the Fed’s decision can’t be reduced to a single number, said Avery Shenfeld, chief economist at CIBC World Markets. “I don’t think there’s an exact number that puts the whole thing together,” Scheinfeld said.
Big US jobs report for February could set size of next Fed rate hike. Wall Street expects a gain of 225,000
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Investors will need to take a look at the February consumer inflation report to be released on Tuesday before they can be firm on whether the Fed will hike by 25 basis points or 50 basis points, he said.
Shenfeld said, “You have to look at those two reports and judge what they said together.”
For now, CIBC is sticking to its call for a 25-basis-point interest-rate hike in 13 days’ time.
Economists polled by the Wall Street Journal on average expect job growth to slow to 225,000 in February, down from a superstrong 517,000 in the prior month.
February jobs report unlikely to reverse January jitters in this week’s key economic data releases: economists
In early February, the Fed raised rates by 25 basis points, from 4.5% to 4.75%. It was the smallest rate hike since the Fed’s inflation-busting campaign began last March.
Traders in federal funds futures now see a 78% chance of a half-percentage-point move to a range of 5% to 5.25% in March.
Shenfeld said a half-percentage point move in March doesn’t necessarily guarantee another of similar size for May or that the Fed will push rates above 6%.
As this month unfolds, the data will decide how big of a rate hike will be seen in May, he said. And because rates will be higher at that time, the bar for a 50 basis point move in May will also be higher, Shenfeld said.
For now, the Fed has penciled in an endpoint of 5% to 5.25%, although Powell told Congress that forecast could be higher when the Fed releases its updated economic forecast with the March interest rate decision.
Shenfeld said all the talk about going higher for a longer period of time obscures the fact that previous rate hikes are causing an economic downturn. “My view is that we are not giving enough importance to the impact of interest rate hikes that have already happened,” Shenfeld said. “It will continue to hit the economy with a lag.”
For example, despite the Fed raising rates, residential construction employment has not yet dropped. Shenfeld said it’s a pretty good bet that job losses are coming for the sector.
Wall Street was lower in afternoon trading. The yield on the 10-year Treasury note TMUBMUSD10Y,
remained slightly below 4%.
Credit: www.marketwatch.com /