The jobs report tells the market what Fed chair Powell was trying to tell them

Oh my God. A lot of investors have just relearned the hard way, the old rule: When someone tries to tell you something about them, listen.

On Wednesday afternoon, Federal Reserve Chairman Jerome Powell speak repeat: We’re not done raising rates yet. We are not finished. We do not expect a rate cut anytime soon. Except for a complete surprise, we don’t expect a rate cut to begin this year. We would rather raise rates too high and keep them high for too long than start cutting them too soon.

Read: The job boom report is actually three times more powerful than it looks

Wall Street unheard. Investors began to put pencils in early rate cuts. Risky assets explode. Nasdaq rose. Cryptocurrencies are up. Cathie Wood was up. Michael “The Big Short” Burry actually deleted his Twitter account after his call to “sell” looked silly.


January job report boomposted on Friday morning, showed nonfarm payrolls rose nearly three times faster than economists had predicted.

No, the economy is not slowing down.

No, the Fed’s massive rate hike campaign over the past year has yet to hit Main Street.

And no, there’s no reason to expect a rate cut anytime soon.

If you want to know what these numbers mean, look no further currency marketwhere people are betting on what interest rates will be.

After the report, Wall Street just halved – repeat: halved – in anticipation of a rate cut this year. On Thursday afternoon, the money market gave a 60% chance that interest rates would begin to fall by the end of the year.

Friday lunchtime, that chance is only 30%.

Meanwhile, the market has now significantly raised the possibility that the Fed will raise rates two more times this spring. On Thursday, Wall Street figured that Powell would be one of them and got it done: That he would raise rates for a longer period of time, by 0.25 percentage points, and that’s it. Now the market is giving about 60% chance for at least two bulls, and maybe even three.

The only real surprise is why this is a surprise.

I admit that I do not follow “Fedspeak” as much as the semi-official interpreters of the media. So I’m not as sensitive as they are to the various nuances of language they claim to have discovered from Powell’s conference. But as I wrote here, he seems pretty clear to me. Now – and especially after the last few years – he’d rather be someone who keeps rates too high for a long time into the future than someone who cuts rates too early in one day.

And yes, although he used a lot of the word “reducing inflation” in his press conference, he also said that so far it can only be seen in commodity prices, not translation. service. An observation anyone can make for months by visiting a gas station.

I spent all day Thursday emailing a lot of very smart financiers asking if I had somehow adjusted Jerome Powell’s press conference to be different from the one watched by the stock market and the bond market. vote or not, and they confessed that they were as confused as I was by the excited reaction.

By Friday afternoon, both stocks and bonds were down sharply. This is bad news for previous market chasers. Interest rates jump along the curve. Bonds are like a seesaw: When interest rates (or yields) go up, prices go down.

When the Fed chair says he will keep rates higher for longer, who will you believe: Wall Street or your own ears?


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