Excuse our overuse of common cliches. But we can find no other description of the dilemma facing the Federal Reserve. We would not want to be in their place. On one hand, the jobs market has been red hot up until now and inflation is still a major concern. When you get jokes about taking out a loan for a dozen eggs, that just about sums it up. On the other hand, the real estate sector has slowed significantly because of higher rates which are the result of the Fed’s medicine against inflation.
Now we have a crisis of confidence in the banking sector, which could spread to the rest of the economy – a crisis which was at least partially precipitated again by the Fed’s medicine. Thus, while the Fed would be inclined to continue to raise rates, they may not be able to. They are in a very difficult position. There are very few times when you could conceive of governmental officials secretly hoping for the economy to create a less jobs than it has been. But these are strange times. This is why last Friday’s jobs report was of so much interest. So, how did we do?
The increase of 236,000 jobs was right on target with regard to expectations. The headline employment rate ticked down to 3.5%, despite a slight uptick in the labor participation rate. In addition, wage inflation came in at 0.3% monthly and 4.2% on an annual basis, as wage increases are slowing but are still elevated. Though the gains were lower than the first two months of the year, this was still a solid report. How will this report make the Fed feel about the future of inflation? Progress is being made, but not enough to rule out another .25% increase when they meet again in May – just before the next employment report. Of course, there is a lot of other news coming before then.