US stock markets surge ahead of Powell’s testimony, Federal Reserve rate cuts
Markets overlook Core PCE rise
US equity markets finished last week on a high note, locking in a sixteenth week of gains out of eighteen for the first time since 1971.
The gains came despite a robust Core PCE print, with markets as expected choosing to look through the number. This perspective was partly based on the view that the rise was driven by one-off New Year price increases in the services sector (including medical and financial services).
Fed rate cut expectations adjust
Additionally, in the lead-up to last week’s core PCE release, expectations of Fed rate cuts in 2024 had repriced significantly lower. After starting the year with almost seven 25 bps Fed rate cuts, the rates market finished last week with 81 bps of rate cuts priced for 2024, in line with the Fed’s projections of three rate cuts.
Upcoming economic insights
This week will provide further insights into the state of the economy and the timing of potential rate cuts with speeches by several Fed members, including Fed Chair Powell’s Semi-annual Monetary Policy Testimony to Congress, as well as labour market updates that include the ADP employment report, JOLTS Job Openings, and Non-Farm Payrolls.
Non-Farm payrolls
Date: Saturday, 9 March at 12:30am AEDT
Recent job market strength
In January, the US economy added 353k jobs, exceeding market expectations of a 180k gain, with the unemployment rate holding steady at 3.7%. This stronger-than-expected number in January followed a very strong 333k increase in December and provided a further reminder that the US labour market remains tight.
February’s employment outlook
For February, the US economy is expected to add 195k jobs with the unemployment rate projected to remain at 3.7%. The participation rate is expected to rise marginally to 62.6% from 62.5% previously. Average hourly earnings are forecasted to increase by 4.3% YoY in February, easing from 4.5% in January.
