February 2, 2022
Last week we spoke about the fact that we are in the midst of a trifecta of economic data. Last week we had the first meeting of the Federal Reserve Open Market Committee for the year. We were expecting an eventful meeting, but not from a standpoint of immediate action. Instead, the market was fixated on learning when the first rate increase might come and further hints regarding how many increases are on the way.
To that end, the Fed statement after the meeting indicated that a rate increase was imminent, which is being interpreted as the next meeting in March. The statement also indicated a shrinking of their bond assets would commence shortly thereafter. This was not a surprise to the markets, but the tone was most hawkish with regard to their fight against inflation. The second leg of the trifecta was the release of the preliminary estimate of fourth quarter growth. Subject to two revisions, nevertheless, the estimated growth rate of 6.9% was seen as very strong and will support the Fed’s move to remove stimulus from the economy.
And this week we get the third leg of the trifecta. The jobs report will be released on Friday. This is actually the first official measure of data in 2022 – the January jobs report. Also, subject to revisions, the markets will be looking hard at the pace of wage growth, as well as the number of jobs added. Wage inflation is a data point that the Fed is looking closely at as they decide on future rate increases. Plus, as we approach full employment, we will see whether the labor participation rate starts to rise as workers return to the labor force.
Source: Origination Pro