Fed Chair Jerome Powell’s two-day testimony continued today and was far less eventful than yesterday’s.
So, what, if anything, changed today? Well, Powell appeared to make one “notable” change to his opening statement delivery, according to Nick Timiraos of The Wall Street Journal. 🤔
Powell makes one notable change to his opening statement in his delivery:
"If — *and I stress that no decision has been made on this* — if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
— Nick Timiraos (@NickTimiraos) March 8, 2023
Given the market’s reaction yesterday, it’s understandable that Powell would want to walk back expectations for a 50 bp hike at the Fed’s next meeting. With that said, it appears the damage has already been done.
According to the CME’s Fedwatch Tool, the bond market was pricing in a 91% probability of a 25 bp rate hike as of last week. Today, it’s now assigned a 78% chance of a 50 bp rate hike. And while the market is fickle and these projections change, that was a significant shift. We’ll just have to wait another two weeks to see if it was warranted or not… 🤷
On the economic data front, two pieces of employment data came out today.
January’s JOLTs data signaled that job openings fell by 410k to 10.824 million, equating to about 1.9 job openings for every available worker. Meanwhile, the quits rate fell to its lowest level since May 2021, as market uncertainty reduces workers’ urge to “job hop.” Total separations were essentially flat, though layoffs rose 16% to 241k. 🧑💼
February’s ADP payroll report indicated that private payrolls rose by 242k, topping the 205k consensus estimate. January’s figure was upwardly revised from 106k to 119k as well. 🔺
Digging into the numbers, wage growth was down 0.1% MoM and up 7.2% YoY. Job changers also saw wage growth fall from 14.9% in January to 14.3%. Pay growth remains elevated, particularly in sectors of the economy competing strongly for workers. But it is slowing.
Leisure and hospitality again led job growth with 83k additions, with financial activities (+62k) and manufacturing (+43k) closely behind. All of the job growth came from companies with 50 or more workers. And job losses were highest in education and health services (-35k), “other services” (-34k), and professional and business services (-36k).
The market will be closely watching Friday’s nonfarm payroll data as it’s one of the few remaining data points ahead of the Fed’s next rate decision on March 22. 👀
Meanwhile, the Bank of Canada paused its rate hikes after eight straight increases brought its overnight rate to 4.50%. Inflation in the country slowed to 5.9% in January, which officials say is on track with its forecasts that consumer price inflation will fall to around 3% by mid-2023. ⏸️
And internationally, a third estimate of the Eurozone’s Q4 economic growth showed that it was flat. In other words, the region narrowly avoided a “technical recession.” 🤏