‘Definitely a head scratcher,’ Wall Street analysts react

January saw an amazing increase in the rate of job growth. Labor Department report for the month shows 517,000 jobs added to the US economyexceeded Wall Street’s expectations.

The release shows that hiring is as strong as ever though The Federal Reserve’s Labor Market Loosening Campaign and curb inflation.

Many analysts complained about the continued strength in jobs, fearing it would signal Federal Reserve officials to continue their interest rate hikes. Some interpreted cooled wages as a sign of easing inflation and expressed concern that excessive tightening could push the US into a recession.

“The important thing is that the unemployment rate falls more than expected without wages getting out of control. That reduces the need for the Fed to continue to ease disruptions to the economy,” said David Russell, VP Market Intelligence at TradeStation Group.

The unemployment rate fell to 3.4% from an estimate of 3.6% – the lowest unemployment level since May 1969.

Following the release of the jobs data, Wall Street analysts immediately reached out to give their thoughts. Here are theirs:

David Russell, VP of Market Intelligence, TradeStation Group

“Some sectors that have struggled during the pandemic, especially the hospitality sector, are returning to old levels. While the 517,000 figure is shocking, it doesn’t really spoil the improving inflation narrative that has surfaced in recent months.”

Josh Jamner, investment strategy analyst, ClearBridge Investments

“Increased employment and hours worked have helped pull down total weekly wages – a proxy for total income that considers employment, hours worked, wages, and is closely related to consumption – rose 1.5%, the strongest gain since August 2020 as the labor market stabilized, initially recovering from the pandemic shock and stronger than anything seen in the decade before the pandemic or even Such strength is likely to curb how quickly inflation can cool, as demand needs to be supported by higher income growth.”

Richard de Chazal, macro analyst, William Blair

“This was a big surprise and clearly raises some questions around the pace of any economic slowdown, as well as when the Fed pauses rate hikes and eventually starts cutting rates. While some commentators focus on the non-seasonally adjusted decline in 2.5 million jobs, the reality is that this is very much in line with previous January reports, so there isn’t much. evidence of seasonal variation.”

Charlie Ripley, Senior Investment Strategist, Allianz Investment Management

“Today’s payroll numbers are definitely a headache for most market participants as the 517,000 jobs gain was much higher than estimated along with the unemployment rate going in the opposite direction. As expected, most of the additional jobs will come from the services and entertainment and hospitality sectors in particular. The silver lining for the Fed in a report like this will have to be reality. Wage pressures continue to ease as average hourly earnings on a yearly basis have fallen from 4.8% to On balance, the latest labor market data underscores the view that policy currency lags and it will take longer for the economy to feel the full impact of the Fed’s 4.75% interest rate policy.”

Ian Shepherdson, Chief Economist, Macroeconomics Pantheon

“We think policymakers should put more emphasis on improving wages data – which suggests they are worrying too much about low unemployment – and a marked drop in inflation.” fundamentals, but Chairman Powell repeatedly emphasized last week that the Fed thinks the labor market is too tight and the latest payrolls and unemployment rate data doesn’t change that picture.”

Quincy Krosby, global chief strategy officer, LPL Financial

“The unexpectedly high payrolls report, with the unemployment rate falling to 3.4%, coupled with disappointing earnings reports from Alphabet and Apple, have market participants concerned that the path towards stability Fed pricing will take longer than the futures market expects—and even the strong report is undeniably what the market hopes will be out of the recession, but not the ones. What do you want to see when expectations about the end of the Fed’s rate hike campaign are suddenly challenged by a significantly stronger labor market.”

Bill Adams, Chief Economist, Comerica Bank

“The January jobs report raises the possibility that the Fed’s final interest rate is above 5%. Their decision will depend on whether other economic data corroborates this jobs report over the next few months. Wage growth is still slowing in the January jobs report, but it’s other details that will make the Fed worry more about the risk of growth overheating.”

Mike Loewengart, Head of Model Portfolio Construction, Morgan Stanley Global Investment Office

“Payrolls blow away expectations to add fuel to the Fed’s rate hike campaign. It’s harder to argue that a rate cut is possible in the future in 2023 if the labor market can continue. continue like this, especially considering it’s still going to see how quickly inflation will drop, even after we’ve peaked, and growth isn’t concentrated in one sector either. , with the broad-based increase indicating this labor market’s resilience amid a tough environment, investors had a lot to digest this week, so nothing surprised to see this report pull the market back.”

Alexandra Wilson-Elizondo, head of multi-asset retail investment, Goldman Sachs Asset Management

“The report will reduce the likelihood of an insurance cut as there are no signs of severe stress forcing a rate cut. In other words, this print gives the Fed more room to allow the macroeconomy to stagnate, and the risks remain tilted toward excessive tightening causing a recession.”

U.S. Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC, U.S., on February 1, 2023. The U.S. Federal Reserve on Wednesday made a rate hike first in the new year.  The central bank raised interest rates by a quarter of a percentage point, marking the eighth time the Fed has raised rates since tightening began in March last year.  (Photo by Liu Jie/Xinhua via Getty Images)

U.S. Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC, U.S., on February 1, 2023. The U.S. Federal Reserve on Wednesday made a rate hike first in the new year. The central bank raised interest rates by a quarter of a percentage point, marking the eighth time the Fed has raised rates since tightening began in March last year. (Photo by Liu Jie/Xinhua via Getty Images)

Gregory Daco, chief economist, EY Parthenon

“This report would favor the Fed moving forward with a 25 basis point rate hike in March, but it does not address the question of whether the Fed will pause its tightening cycle in March or later in the spring. Indeed, the strength of the labor market is likely to sway policymakers towards more tightening on fears that wage pressures could remain higher… After witnessing Given the significant easing of financial conditions after his press conference, Fed Chair Powell may have to lean more towards tightening than what the market is currently pricing in as Fed fucker tango continues .”

Jeffrey Roach, chief economist, LPL Financial

“The labor market remains stable, offsetting the risk of slower consumer spending. In addition, slowing average hourly earnings should ease inflationary pressures in the near term as wage growth returns to normal. There is no doubt the Fed will continue to raise interest rates at the next meeting to slow down the need for the economy.”

Steve Rick, chief economist, CUNA Mutual Group

“The January Consumer Price Index report shows prices fell month-on-month for the first time since May 2020. Falling prices suggest aggressive Fed rate hikes are starting to tackle inflation but have not yet. directly affect the unemployment rate. Ideally, the economy would achieve its target of 2% inflation, 2% economic growth, and a natural unemployment rate of 4.5% by 2024.”

Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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