The narrative that the US central bank will press interest rates higher and hold them there for longer has been revived.
The blockbuster January jobs report is likely to strengthen the Federal Reserve’s determination to raise interest rates above 5 per cent and keep them high throughout the year — an outcome investors remain sceptical of.before putting their aggressive tightening campaign on hold, though he didn’t push back strongly against markets pricing just one more hike and cuts by the end of the year.
Seventeen of 19 policymakers in December forecast rates rising above 5 per cent this year and the median projection was for 5.1 per cent, implying two more quarter-point hikes, presumably at the Fed’s meetings in March and early May, with rates staying on hold through the rest of the year. Morgan Stanley economists led by Ellen Zentner, who had been predicting the Fed now would pause rate hikes, revised their forecast on Friday to include another quarter-point increase. There’s “more upside risk if labour market data continue to move from strength to strength”, they wrote in a client note.The Fed has sought to ease wage gains to a level consistent with its 2 per cent inflation target. The jobs report showed average hourly earnings rose 0.3 per cent from December and were up 4.
While the jobs figures showcase the resilience of the job market, Fed officials have said their goal is to reduce US growth to below its long-term trend to ensure price pressures are brought back down to levels that existed prior to the COVID-19 pandemic.
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