A government report on Thursday shows the number of Americans applying for unemployment benefits last week jumped by the most in five months, but lay-offs remain historically low.
Yields on the two-year Treasury, which tends to track expectations for future Fed action, eased to 4.87 per cent from about 5.05 per cent just before the unemployment report’s release. It had been hovering at its highest level since 2007.
The unemployment data follows a report on Wednesday showing that the number of job openings advertised across the country last month was higher than economists expected. The US government’s more comprehensive report on hiring is scheduled for Friday.
A big concern within the unemployment data for the Fed and Wall Street is the pace of wage growth. Strong wage gains are good for workers struggling to keep up with high inflation, but they could also keep pushing inflation higher, making it harder for the central bank to fight high prices.
“It’s leading people to try and come to grips with what a stubbornly tight labour market means for economic growth as well as the inflationary environment,” said Keith Buchanan, portfolio manager at Globalt Investments.
Wall Street has been reviewing a range of data that has highlighted both a resilient economy and stubborn inflation. More updates are coming next week when the government releases reports on inflation at both the consumer and wholesale levels, along with retail sales data.
Traders are leaning toward the Fed raising its benchmark interest rate by 0.50 percentage points on March 22. They had been expecting the central bank to stick with a smaller increase of 0.25 points before Powell’s testimony this week, according to data from CME Group.
“The notion that was in the back of the minds of investors was that the worst of the tightening cycle was making its way into the rearview mirror, and it would take a lot to re-accelerate tightening,” Buchanan said. “[Powell] put the re-acceleration back on the table.”
The Fed’s goal is to bring inflation down to 2 per cent. That figure stood at 5.4 per cent as of January. The central bank has already raised its key overnight rate to a range of 4.50 per cent to 4.75 per cent, up from virtually zero at the start of last year, its fastest set of hikes in decades.
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