Investing.com - A solid U.S. employment report for January supported the idea that the Federal Reserve’s pause on policy tightening may not be as short-lived as markets had hoped.
Nonfarm payrolls rose by 304,000 in January, smashing consensus expectations for the creation of just 165,000 positions.
Allianz (DE:ALVG) Chief Economist Mohamed El-Erian considered the report to show “another huge beat for the headline number. Again the economy created almost twice as many jobs as consensus expectations for the month”.
The blight on the data, a surprise increase in the jobless rate to 4.0%, could be considered a temporary effect from the recent U.S. government shutdown.
“The impact of the partial federal government shutdown contributed to the uptick in these measures,” the Bureau of Labor Statistics explained in its report.
The Fed decided to hold interest rates steady this week and emphasized that economic cross-currents suggested that “patiently awaiting greater clarity” was the best stance.
Markets have remained skeptical that the Fed will follow through with two further rate hikes this year as policy-makers predicted back in December, with federal fund futures pointing to no moves this year.
In fact, following the press conference given this week by Fed chair Jerome Powell, the probability was placed at one-in-three for the central bank to actually cut interest rates this year.
Immediately following the jobs report, markets threw out the idea of a decrease in rates, although investors were still unconvinced that the Fed would tighten further.
El-Erian commented that the jobs reports should “counter concerns about a significant growth slowdown and put an end to talk of a recession” this year.
It will also “fuel debate on whether the Fed went too far in pleasing markets,” he said.
In commentary on the January jobs report, James Knightley, chief international economist at ING, noted that “the Fed is on pause, but the case for rate hikes will persist”.
“With worker pay on the rise and employees feeling secure in their jobs, consumer spending will likely remain firm while adding to inflation pressures in the economy. Fed Chair Jerome Powell talked of economic and market crosscurrents, justifying a pause from the Federal Reserve, but if we can get better news on US-China trade relations, that will lift some of the global gloom,” Knightley said.