How a hot jobs report ‘moved the goal post’ on interest-rate expectations
Traders and investors are putting the prospect of the highest U.S. interest rates since 2006–07 back on the map, following a blockbuster January jobs report.
Data released on Friday showed the U.S. created 517,000 new jobs last month, far more than the 187,000 expected by economists — placing a 5%-plus federal funds rate within sight in a matter of months. The report “has all but locked in another rate increase” and has moved the goal posts on the terminal rate or level at which the Federal Reserve will end its rate hikes, said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
The fed-funds rate currently sits in a range between 4.5% and 4.75% following a quarter-of-a-percentage-point hike last Wednesday, and is up from almost zero at this same time a year ago as policy makers turned their attention to fighting inflation. The Fed hasn’t lifted its benchmark rate target to 5% or higher since May-June of 2006; it didn’t cut rates until September 2007.
In December, via their economic projections, policy makers flicked at the likelihood of a 5.1% terminal fed-funds rate forecast in 2023. Investors and traders largely brushed aside the outlook, however, because they were counting on officials to lose their nerve as the risks of a U.S. recession seemed to grow. Signs of slowing inflation in January’s data releases for December only added to the idea that the Fed could end its rate-hike cycle soon.
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