Data dependent… That's a phrase that's all too common in financial markets and among members of the Federal Reserve. It refers to the fact that economic data will determine the future path of interest rate decisions.
While interest rates always depend on data, the data outlook is not always as uncertain as in recent years. At times we have waited for inflation and job growth to stop rising. At other times we have waited for them to confirm a move in the other direction. Whatever the case, there are some reports that keep a closer eye on the financial markets than others, and today's jobs report is one of the best examples.
When job growth is higher than expected, the standard response is for interest rates to rise. On average, the larger the “hit” (which refers to the actual number of jobs compared to the median forecast of several economists), the larger the jump in interest rates. With that in mind, today's wage figure of 303,000 versus an average forecast of 200,000 was a big blow!
It was no surprise that bonds lost ground and interest rates rose, but the magnitude of today's rate hike is much stranger. The average lender only had a slightly higher interest rate.
It's strange, but perhaps not incredibly surprising. Again, it's all about the data, and while Friday's jobs report is definitely one of the two most important reports of a month, next week's Consumer Price Index (CPI) is bigger. Today's resilience could have a lot to do with the market awaiting results next Wednesday.
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