Market volatility has intensified as financial conditions tighten and global central banks pursue monetary policies to combat persistently high inflation and maintain financial market stability.
Although economic data was relatively light this week, numerous members of the Federal Reserve including Fed Chief Powell were consistent in their messaging this past week regarding the need for additional rate increases to curtail inflation. Another consistent theme among all Fed members interviewed this week was the strength of last week’s labor market report showing employers added 517,000 workers in January and an unemployment rate of 3.4%, the lowest rate since 1969. Chair Powell in a moderated discussion at the Economic Club of Washington, D.C. referenced the employment report, stating that “it shows you why we think this will be a process that takes a significant period of time.” In addition, Federal Reserve Bank of New York President John Williams at a Wall Street Journal event in New York referenced wage growth, which is above levels necessary to reach the Federal Reserve’s 2% goal for inflation.
This morning’s employment report surprised to the upside with 517,000 jobs added to the US economy in January, crushing consensus expectations for 188,000 and pushing the unemployment rate down to 3.4%. Hiring was broad-based across industries with leisure and hospitality, professional and business services, and government hiring leading the gains. In addition, upward revisions for November and December totaled +71,000 jobs. The labor force participation rate ticked up slightly to 62.4%, although still running below the pre-pandemic level of 63.3%. Average hourly earnings declined to 4.4% year-over-year in January from 4.8% year-over-year in December, a sign that a key component of inflation is moderating.
