| Ronen Menachem, Chief Economist of Mizrahi Tefahot Bank
The vast majority of general and economic attention is currently given to the Russia-Ukraine war, but last Friday a very important figure was released in the US, which could affect the Federal Reserve’s interest rate policy, if any of the surprising findings included in it continue.
This is the month of February in the United States, which showed an increase of 678,000 – above and beyond all estimates (which averaged 400,000 jobs). The data for the previous two months have also been significantly revised upwards.
However, in my opinion, this is not the most important part of the report. There is no doubt today that the US economy is recovering, and so is the labor market.
Therefore, in this respect, I do not see the impact of this figure on the Federal Reserve’s plans to raise interest rates any further this month, as he himself noted, last weekend, Fed Chairman Jerome Powell.
On the other hand, there is a given report that could decide that the first increase will be 25 basis points, not 50 basis points, and it could also affect the slowdown in the route of interest rate increases later in the year. This refers to the fact that for the first time in many months it remained unchanged, after rising 0.6% in January (the figure was updated downwards from 0.7%).
In the last 12 months the 5.1% has risen, here too, for the first time in a while, a slowdown from a 5.5% increase in the 12 months to January (this figure has also been updated downwards from 5.7%). It should be noted that economists thought that wages would rise 0.5% this month and 5.8% in the last 12 months!
Thus, while the intensity of employment was pleasantly surprising, the important wage item surprised rather downwards, while stepping in place in February and downward updates to the data for January and December.
According to most estimates, the rapid rise in wages is one of the main reasons for the rise in the US inflation environment – actual inflation and expectations.
If the coming months also point to a halt in the rise in wages, this will have far-reaching consequences. The Federal Reserve, which at the same time is monitoring the effects of the military deterioration on the world economy and investor sentiment, will have a hard time ignoring it.
The yield yield curve reacted accordingly – a general decrease, with a slight curl, since as stated, the wage data can moderate the wage increases later in the year more than the next one.
As the following economic data point to the Fed’s ability to settle for a more moderate rate hike – this is good news for US stock markets, with an impact on major stock markets around the world as well.
The author is the chief economist of Mizrahi Tefahot Bank. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.