An "incredibly strong jobs” report for March will put the bond market in a “panic mode” over interest rate cuts being delayed, said Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates.
However, Doty questions the overall strength of the labor market.
“I keep scratching my head wondering why so many people are deciding to get jobs now when millions of job openings have been available for at least a couple of years,” he said. “It’s not as though the economy suddenly produced these jobs. So, people joining the workforce now must need the jobs. As a result, I’m cautious about how strong the jobs data really is for the economy.”
As such, Doty said he now expects a 25-basis-point rate cut in the third quarter of the year and a 50-point cut in the fourth quarter.
Sit Investment has $16 billion in assets under management.
Brad Conger, chief investment officer at Hirtle Callaghan & Co., said the March jobs data shows the U.S. economy is indeed strong, and that inflation “does not succumb to the magic of supply.”
“We will soon find out if the Fed’s ‘data-dependence’ was idle blather or serious policy, he said. “Our base case is still for two (rate) cuts in the second half of this year, but the ‘higher-for-longer’ probabilities are undoubtedly rising.”
Hirtle Callaghan has $18.5 billion in AUM.
The U.S. economy created 303,000 jobs in March, above the downwardly revised figure of 270,000 from February, and well above expectations, the U.S. Bureau of Labor Statistics reported April 5.
The unemployment rate remained flat at 3.8%.
Economists had expected an increase of 205,000 jobs in March with the jobless rate at 3.8%, according to a survey by FactSet Research Systems, a financial data firm.
In March, job gains were especially pronounced in the healthcare, government and construction sectors, the bureau said in a news release.
The January 2024 payroll was upwardly revised to 256,000, while the figure for February was revised down to 270,000. As a result of these revisions, employment in January and February combined was 22,000 higher than previously reported.
Over the past 12 months, an average of 231,000 jobs were created per month.
The Federal Reserve will likely consider the strength of the labor market when it releases its next policy decision May 1.
According to CME Group's FedWatch tool, market participants' pricing of fed fund futures indicated as of the morning of April 5 that there is an overwhelming 99% probability that the central bank will keep rates unchanged at the next meeting, and only a 1% probability it will raise rates by 25 basis points.
The Fed’s key short-term interest rate is currently in a range of between 5.25% and 5.5%, after the central bank elected to hold rates steady at its last meeting March 20.
Josh Jamner, investment strategy analyst at ClearBridge Investments, noted that wages picked up in March, “but not too much, which should help keep fears of an inflation reacceleration at bay for now.”
While strong jobs data at the margin means less need for the Fed to cut rates, Jamner noted, a “cooperative wage picture limits how much impact this jobs report will likely have on the Fed’s thinking. Next week’s inflation data will likely be more important on that front.”
Clearbridge has $176.6 billion in AUM.
