Friday’s surprisingly robust U.S. jobs report is creating another point of contention in the already-wide disconnect between financial markets and Federal Reserve policy makers.That’s because the employment data for April could be taken in one of two ways.
Taken together, the data drove another wedge into the big gap that exists between what financial markets and Fed officials are seeing and expecting. Fed policy remains strongly data dependent, as Chairman Jerome Powell made clear on Wednesday, when officials left themselves just enough wiggle room to hike rates again if needed.
“The setup is one where we have banking-sector stress continuing to unfold, and the Fed being excessively data-driven,” Daco said via phone on Friday. “If we get more reports like today, policy makers will maintain a hawkish tilt toward lifting rates. Some policy makers may argue that additional tightening is necessary, bringing the fed funds rate closer to 6%, but I don’t think that’s going to happen.
By Friday, stocks and bonds were doing the opposite of what they did a day ago. All three major U.S. stock indexes DJIA SPX COMP rallied into afternoon trading, led by a 1.9% rise in the Nasdaq Composite, driven by what OANDA analyst Ed Moya said were Friday’s revisions to the jobs data for March and February. Regional banks’ shares also staged a recovery, with PacWest’s shares up by 76%.
Parts of the financial markets and the Fed remain “on two different pages,” said Keith Buchanan, a senior portfolio manager at GLOBALT Investments in Atlanta, which oversees around $2.5 billion. “The Federal Reserve is talking about putting the lid on inflation for good, which will require more debate on what policy is appropriate going forward. The market is calling for a retreat by the Fed pretty quickly.