February Employment Report and Jerome Powell’s Congress Appearance: Insights on US Labor Market and Future Interest Rates

The release of the February employment report for the United States on Friday will provide additional light on the strength of the labour market, and investors will be watching Jerome Powell’s appearance before Congress for any new information on the direction that interest rates may take in the future. Equities are expected to continue volatile, central banks in Japan, Canada, and Australia will meet, and statistics from the United Kingdom will reveal how the weak economy fared at the beginning of the year.

The February employment report, which will be released on Friday, will be the final one before the Fed’s upcoming meeting on March 21–22. This report is especially important because the January blowout data caused investors to reassess their expectations for the future course of interest rates.

It is anticipated that the economy added 200,000 jobs last month, down from January’s explosive rise of 517,000 jobs, and that the unemployment rate would remain at a more than five-decade low of 3.4%.

Another report that comes in stronger than anticipated could fuel concerns about more hawkish Fed action. Strong labour market demand boosts wage growth, which raises inflation and puts pressure on the Fed to raise interest rates.

Investors now anticipate that the Fed will raise interest rates by another 25 basis points this month, although market pricing now indicates a somewhat higher likelihood of a larger increase than in the past.

Powell will testify before Congress to provide the central bank’s semi-annual monetary policy report prior to the release of the jobs data on Friday. On Tuesday, he will testify before the Senate, and on Wednesday, the House of Representatives.

His remarks will be extensively scrutinised for any indications of whether a higher rate hike is being considered this month in light of recent statistics showing that inflation is still persistent. The January jobs report, according to Powell, demonstrated why the fight against inflation will “take quite a bit of time”.

After a 50-basis-point increase in December, which followed four successive 75-basis-point increases, the Fed lowered the rate hike pace to 25 basis points at its most recent meeting on February 1.

The S&P 500 ended a three-week losing run on Friday, capping a turbulent week, while the Dow Jones Industrial Average posted its first weekly gain since late January.

Bonds and stocks fell in February after making a sharp comeback in January as investors were concerned that the Fed will raise interest rates more than initially anticipated and keep them high for longer to fight inflation.

In the days leading up to the March Fed meeting, there may be additional market turbulence.

The last stretch of the fourth quarter earnings season is now underway, with all but seven of the S&P 500 companies having submitted their reports. Refinitiv data show that results for the quarter have outperformed consensus expectations 68% of the time.

This week, the central banks of Japan, Australia, and Canada will all meet to discuss monetary policy.

Haruhiko Kuroda, the governor of the Bank of Japan for ten years, will preside over his final meeting on Friday. He has been in charge of super-easy monetary policy. Before Kazuo Ueda, his replacement, takes over on April 8th, there won’t likely be any changes.

The Reserve Bank of Australia meets on Tuesday, and investors are now anticipating rates to remain on hold after recent data showed the economy grew at the slowest pace in a year in the fourth quarter and January figures indicating inflation may have peaked. Although officials had hinted at the possibility of further tightening at their meeting last month, they have since backed off that plan.

At its first meeting since officials declared a conditional halt in January to give the economy time to react to rising borrowing costs, the Bank of Canada is also anticipated to keep rates unchanged on Wednesday.

After narrowly avoiding a recession in the final three months of 2022, the U.K. will release GDP data on Friday that will indicate how the economy performed in January. Only a 0.1% increase in the gross domestic product over December is what economists anticipate for January.

According to Bank of England Chief Economist Huw Pill, the British economy is expanding a little faster than anticipated and pay growth is happening a little quicker than projected as well.

Nonetheless, the only G7 economy that is still smaller than it was prior to the coronavirus outbreak is Britain. The IMF predicts that it will be the only G7 economy to contract this year.

Given that consumers seem to be holding up against double-digit inflation, the BOE may now be forced to continue raising rates.