All week, economists had talked themselves into expecting a weak January jobs.
So they were startled by the across-the-board strength of the report, with almost 500,000 jobs added, solid wage gains, and increase in the crucial measure of workers who are participating in the labor market.
The knee-jerk reaction on Wall Street was that the Federal Reserve would be prodded by the data to raise its policy rate by 50 basis points at its next meeting in mid-March to make clear to investors that it has changed its previously dovish spots. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.913% moved above 1.9% and the Dow Jones Industrial Average DJIA, -0.06% was down 265 points or 0.75%.
Economists generally were skeptical of the idea — although they were quick to note that there will be three key inflation readings prior to the Fed’s decision-day on March 16.
Here is a sampling of comments from Fed watchers after the job report.
“We still think that a slowdown in first-quarter GDP growth will persuade officials to start slow, although they could project a bigger cumulative tightening over the next few years.” — Andrew Hunter, senior U.S. economist at Capital Economics.
“I think the hurdle for 50 basis points is quite high, especially to lead off. The thing to remember also about 50 basis point hikes is that there were pretty common in the past, when the Fed didn’t have tools to communicate. Now they have the Summary of Economic Projects where they can indicate more hiking down the road. I think that reduces the need for being very aggressive at the meeting in the middle of March.” — Jan Hatzius, chief economist at Goldman Sachs.
“Clearly, the labor market remains a seller’s market, and rapid wage growth will continue to draw people back into the labor force. Still, the lofty headline job growth number notwithstanding, we caution against drawing too many, if any, conclusions from the January employment report,” said Richard Moody, chief economist at Regions Financial Corp.
“I think the 3 takeaways from the January employment report: (1) The virus no longer matters for the economy to any meaningful degree. (2) The inflationary boom continues unabated. (3)… Do I think the Fed goes 50 bp at the March FOMC? No. I do not, but I am getting close,” said Neil Dutta, head of economics at Renaissance Macro Research.