Investors keeping an eye on the Fed following the latest jobs report got a rough answer Friday.
The labor market is deteriorating and inflation remains above the Fed’s 2% target, leaving officials with little room for reassurance.
Nonfarm payrolls fell by 92,000 jobs in February, according to the Bureau of Labor Statistics. Economists had predicted an increase of 50,000 people. This is the third employment decline in the past five months. The report sparked heated debate within the Fed. Mary Daly, Stephen Millan and Michelle Bowman all responded on Friday, and all three comments were important as officials meet again in Washington on March 17-18.
Mary Daly says February’s employment weakness will force the Fed to weigh employment against inflation
San Francisco Fed President Mary Daley said Friday that the weak February jobs report makes policy decisions difficult. In an interview Friday, Mary did not state his position on interest rates. He said the labor market has softened, making next decisions more difficult, even though inflation remains above target.
Mary said, “I noticed this job market report.” She also said, “I don’t think you can read this report, but I also don’t think you should use it for more than one month’s worth of data.”
Mary also compared the current situation to 2019, when inflation was below target and a rate cut was more likely to be justified. He said this time is different, as inflation has been above target for some time.
“It’s a completely different world than when inflation is below target,” Mary said. He added: “But now inflation is above target. We’ve had inflation above target for some time, so this is really a balancing of risks calculation and we hope that the 75 basis points we did last year will put a floor in the labor market.”
The news prompted futures traders to raise the possibility of a rate cut. The bank brought forward its next rate cut to July, raising the possibility of two rate cuts before the end of the year. Mary also said it would be difficult for the Fed to make the case for raising rates if there are no clear signs that the labor market is stabilizing.
“I think the important thing is that it’s very difficult to raise rates right now in a world where there’s no evidence that[the labor market]is completely stable, so I think we need more time,” he said. Mary will not vote on the Federal Open Market Committee this year, but plans to vote again in 2027.
Stephen Millan and Michelle Bowman say the Fed may need to cut rates further after weak jobs data
Federal Reserve President Stephen Milan said Friday that the weak February jobs report supports the case for rate cuts. “I don’t think there’s an inflation problem,” Stephen said of Money Movers. He also said:
“I think the labor market could use more monetary policy accommodation. I also don’t think it’s appropriate to have a moderately restrictive monetary policy stance rather than a neutral stance. I think something closer to neutral is appropriate.”
Stephen said he believes the neutral rate is about 1 percentage point lower. As Cryptopolitan reported at the time, the consensus among Fed officials at its December meeting was neutral at about 3.1%, suggesting two more rate cuts.
Stephen also argued that stubborn inflation measurements are skewed by the Department of Commerce and Department of Labor’s method of measuring prices.
One example he cited is portfolio management fees, which increase in dollar terms as the stock market rises, even if the actual fee rate remains the same.
Stephen also said the recent spike in oil prices related to the Iran war is not too worrisome for policy. He said the Fed typically does not respond to oil shocks like this because, while headline inflation is pushed up, the medium-term trajectory of core inflation is often unchanged.
“Normally the Fed doesn’t respond to oil price increases like that. It does (boost) headline inflation, but it tends to be a one-off shock,” Stephen said.
He added:-
“If you think about core inflation (which doesn’t include energy prices), it tends to be more predictive of what inflation will be over the medium term than headline inflation.”
Fed Vice Chair for Supervision Michelle Bowman also signaled support for further rate cuts following the weak report.
In an interview with FOX Business, Michel said there was no problem with keeping interest rates unchanged at the January meeting, but February’s statistics changed the situation.
“There was no problem in holding the January meeting, but looking at the situation in the labor market, it was probably an anomaly,” Prime Minister Michel said, referring to strong job creation in January.
Michel added that the new figures “confirm that the labor market remains weak, which could provide some support to policy rates.”