Investors want to hear Powell’s thoughts on the latest employment data

Of particular interest to stock investors, today is what Federal Reserve Chairman Jerome Powell has to say at an event organized by The Economic Club of Washington DC. But, most importantly, they want to know his thoughts on the latest Labor Department report, which showed US payrolls grew by more than 500,000 in January as the unemployment rate hit a new low of 5.3%.

This coincided with a rise in job openings back to 1.9 per every unemployed person. While the data might be good news to recession watchers, it presents a problem for the Federal Reserve’s inflation fight as a tight labor market typically keeps wage gains elevated, in turn fueling inflation.

Policy officials need to decide if January’s employment gains were an anomaly, and they can’t rule out an additional hike beyond the two currently implied. There would be one more round of monthly employment data before the Federal Reserve’s next meeting, so if January’s gains were just a one-off, that could be revealed in the Employment Situation on March 10. Bostic also warned that even after the Federal Reserve pauses hikes, it could again choose to lift rates further if necessary. This tendency usually keeps wage growth elevated, which in turn fuels inflation.

The Federal Reserve remains in a tightening mode, and its eventual destination is still unknown. Influenced by disappointing fourth quarter earnings reports, analysts have cut outlooks for the upcoming quarters. According to FactSet, for Q1 2023 and Q2 2023, analysts are projecting earnings declines of -4.2% and -2.9%, respectively. This has resulted in an increase in uncertainty within the Fed, which may result in further action later on down the road.

The EUR/USD pair extended its slide to a fresh three-week low at 1.0969, as demand for the US Dollar prevailed ahead of United State Federal Reserve (Fed) President Jerome Powell’s speech. Market participants are still pricing in the latest central bank decisions and the solid employment report published last Friday, both suggesting the Federal Reserve would maintain its tightening course. Policymakers hinted at a potential higher-than-anticipated terminal rate, weighing on chances of a rate cut by year-end. Chair Powell is due to participate in a moderated discussion at the Economic Club of Washington DC after Wall Street’s opening and may or may not make comments on monetary policy.