Eyes on Jobs Report after Fed Downshift
The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, slowing its pace of policy tightening.
Investors are facing divergent economic signals in 2023. Surging jobs growth. Cooling inflation. The lowest unemployment rate since 1969. Signs of economic resilience in the US have emerged in recent weeks, headlined by a surprise acceleration in the pace of hiring in January with 517,000 jobs added. Meanwhile, wage growth moderated despite ongoing weakness in labor market participation, allaying concerns about one potential driver of inflation. Yet an inverted yield curve continues to indicate a coming recession, and the economy has exhibited softer goods demand, weaker manufacturing activity, and a slowdown in the real estate market.
By the Numbers: The January U.S. Jobs Report
These contradictory indicators have made this a hard economy to decipher, contributing to uncertainty hovering over financial markets. The upbeat jobs report prompted market participants to price in two quarter-point rate increases in March and May, after previously expecting the Federal Reserve to deliver just one more hike before pausing. Fed Chair Jerome Powell on Tuesday hinted at higher rates to come, saying the labor market’s strength was evidence that taming inflation will likely take “a significant period of time.” PGIM Fixed Income’s first-quarter outlook addresses the forecasting challenges in the current economic cycle, as the labor market and consumption remain more resilient than anticipated amid global monetary tightening.
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