Implied odds of a 50bp jump in March Fed hike after jobs data

The implied probability of a 50 basis point hike in March rose from 18% to 34% after today’s data on nonfarm payrolls. Note that the meeting is March 16, so we will have another employment report before then.

With the Bank of England’s close vote for a 25 basis point hike instead of 50 basis points yesterday, the bond market is scared. US 10-year yields are up 9 basis points today at 1.28%.

It is filtered through the foreign exchange market, where the US dollar is soaring at all levels.

I’m skeptical of this data due to benchmark revisions, but I don’t think anyone is claiming that the US labor market isn’t tight. The jobs are plentiful and the wage gains are real.

Does this mean the Fed should lift the panic button? I don’t think they will but you can see which way the wind is blowing and it’s hard for the Fed to lean against the narrative that inflation is a problem especially with oil at 92 $.

For now, trade is trade and I see no reason to oppose it, but I will note that what is happening is global and not specific to the United States. Labor markets are tightening everywhere, so central bankers’ trajectories will diverge when it becomes clear what is transitory and what is not. The United States is not going to move very far from Canada, for example.


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