Want to know the precise number of jobs that would push the Fed to hike by 50 basis points? There isn’t one.


Federal Reserve Chairman Jerome Powell this week said central bankers would consider reaccelerating the pace of interest-rate hikes if February economic data continued to show a stronger economy and higher inflation than had been expected.

That leads to the next obvious question — is there a precise number of net job gains that would guarantee a half-percentage-point hike at the March 21-22 meeting?

Unfortunately, the Fed’s decision can’t be boiled down to a single number, said Avery Shenfeld, chief economist of CIBC World Markets, on Thursday. “I don’t think there is a precise number that puts the whole thing together,” Shenfeld said.

See: Big U.S. jobs report for February could decide size of next Fed rate hike. Wall Street expects 225,000 gain

Economic calendar: On the docket for the coming days are not only nonfarm payrolls and CPI but PPI and retail-sales data

He said investors will have to take a look at the February consumer inflation report, to be released Tuesday, before they will have a firm grasp on whether the Fed will hike by 25 basis points or 50 basis points.

“You have to look at those two reports and judge what they said together,” Shenfeld said.

At the moment, CIBC is sticking with its call for a 25-basis-point interest-rate increase in 13 days’ time.

Economists surveyed by the Wall Street Journal, on average, expect job growth to slow to 225,000 in February from the superstrong 517,000 in the prior month.

Traders of federal funds futures now see a 78% chance of a half-percentage-point move in March to a range of 5% to 5.25%.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities, is forecasting a net 300,000 jobs were added in February. He is also expecting a 0.4% gain in the core consumer price index in February, which is in-line with market consensus.

If the data meets this forecast, that will “probably keep the market pricing at a high probability of 50 basis points and if that happens the Fed is likely to deliver on it,” Luzzetti said.

Read: February jobs report unlikely to reverse a January blowout in this week’s key economic data release: economist

In early February, the Fed pushed up rates by 25 basis points to a range of 4.5% to 4.75%. It was the smallest rate increase since the Fed’s inflation-busting campaign lifted off last March.

Shenfeld said that a half-percentage-point move in March does not mean that another one of the same size is guaranteed for May or that the Fed will push rates above 6%.

As is the case this month, the data will decide how large a rate hike will be seen in May, he said. And because rates would at that point be higher, the bar for a 50-basis-point move in May will also be higher, Shenfeld said.

Luzzetti of Deutsche Bank disagreed. He said that reaccelerating to 50-basis-point hike “opens up a whole range of outcomes for the policy rate that we didn’t think were all that high probability before.”

“The market impact of opening that up could be pretty meaningful,” Luzzetti said. Financial conditions could take reasonably large hits. That might have been Powell’s goal, he added.

“Financial conditions have been too easy. They’ve been somewhat irresponsive to Fed signals and it may take a shock to get them more aligned with where the Fed needs to be,” he added.

At the moment, the Fed has penciled in an endpoint of 5% to 5.25%, although Powell told Congress this forecast is likely to have moved higher when the Fed releases its updated economic forecast along with the March interest-rate decision.

“I don’t think we can be comfortable with any particular level of the terminal rate,” Luzzetti said. “Every time we get to a new level and we think it may be sufficient, we so far have learned it hasn’t been and the economy has been more resilient than previously thought,” he added. There needs to be a lot of humility in assessing where that rate needs to be, he added.

“It could certainly be above our baseline” which is an endpoint of 5.6% at the moment,” Luzetti added

Shenfeld said all the talk about going higher for longer obscures the fact that an economic slowdown brought about by the past rate hikes is on the way. “My view is that we’re not giving enough weight to the impact from the interest-rate hikes that have already happened,” Shenfeld said. “This will continue to hit the economy with a lag.”

For instance, despite the Fed’s rate hikes, residential construction employment hasn’t dropped — yet. Shenfeld said it’s a pretty good bet that job losses for this sector are on the way.


closed down sharply lower. The yield on the 10-year Treasury note
remained slightly below 4%.




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