Today’s jobs report is expected to be a much-needed chill pill for markets. But you might want to brace for a freakout. February employment data due out at 8:30 a.m. is landing as Federal Reserve watchers grapple with what might have been unthinkable just a few weeks ago: What if we get no interest rate cuts this year? It’s a possibility that’s been creeping into the financial discourse thanks to a series of upside data surprises and a belief among some that the unexpectedly resilient U.S. economy may be re-accelerating when it should be slowing down. “What would support the markets would be a Goldilocks situation,” Boston College economics professor Brian Bethune told MM before today’s Labor Department report. “You don’t want things to be too hot or too speculative, and you don’t want things to cool off too much, either. The February number should basically support that things are not getting out of hand on the real side of the economy.” What economists expect Per Bloomberg, economists are forecasting that U.S. employers added 200,000 jobs last month. That would be a solid read on the economy and something that’s more down to earth compared to January’s shock report of 353,000 jobs. It’s worth keeping in mind that some economists believe January’s report was inflated by seasonal factors and therefore wasn’t a great snapshot of the jobs market. “This is not to say we think the underlying report was weak or that labor markets conditions softened, but we have doubts about whether we should take the data at face value,” Bank of America’s Michael Gapen and Stephen Juneau wrote Wednesday. Why it matters After overhyping the pace and number of potential rate cuts, markets have been dialing back expectations in recent weeks thanks to signals from Fed officials and economic data. A February jobs report in line with forecasts may help keep things steady, while another surprise spike might fuel further “no cuts” talk. Apollo’s Torsten Slok made the case for no cuts in a note last week, and on Wednesday he followed up with a list of reasons why the February employment report will be strong, including looser financial conditions and low jobless claims. “The employment-to-population ratio is almost a full percentage point lower than pre-Covid, and immigration continues to be strong, suggesting there is still more upside potential to employment,” he said. Fed Chair Jerome Powell grabbed the wheel in Senate testimony Thursday and began to signal that rate cuts are still coming. Stocks closed higher. “We’re waiting to become more confident that inflation is moving sustainably at 2 percent,” he said. “When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction.” Happy Friday — Is Congress going to pass bank executive accountability legislation, also known as the RECOUP Act? What have you heard? Send tips to zwarmbrodt@politico.com.
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