Market Looking Ahead to Powell and Jobs Report

  • Overseas news has yields lower as China set modest growth targets and that sent oil and other commodity prices lower, and yields are reacting to the potentially inflation-friendly news. Currently, the 10yr is yielding 3.91%, up 11/32nds in price, and the 2yr is at 4.83%, up 1/32nds in price.  The rebound in longer duration Treasury prices has the 2yr-10yr curve at a new cycle low inversion of -92 bps as the front-end remains buoyed by Fed rate-hiking expectations (see graph below).


  • This is an important week for the market and the Fed. The February jobs report on Friday will go a long way in determining whether January strength was a one-off event or whether it was the beginning of a new higher growth trend for the economy. Also, on tap of consequence is the two-day Humphrey-Hawkins testimony by Fed Chair Powell on Capitol Hill tomorrow and Wednesday.


  • As for the jobs report, a return to the late 2022 trend is what is expected. The Bloomberg consensus median estimate is for 223 thousand new jobs vs. January’s surprising 517 thousand. Recall that December had 260 thousand new jobs and that represented the fifth straight month of declining job growth. The unemployment rate is expected to remain unchanged at 3.4% with average hourly earnings at 0.3%MoM, matching January’s gain, and 4.7%YoY vs. 4.4% in January.


  • If the jobs report comes as expected it will cool some of the 50bps rate hike talk, but with unemployment expected to remain at the cycle low, wage gains remaining solid, and a JOLTS report due Wednesday that is expected to show 10.5 million job openings, the Fed will still have plenty of reason to continue with the hawkish rhetoric and plan for three 25bps rate hikes through June.


  • Fed Chair Powell will testify before the Senate Banking Committee tomorrow as part of his semi-annual commitment under Humphrey-Hawkins and will return on Wednesday to testify before the House Financial Service Committee. Given that most of the economic information that has been released since the Feb. 1 FOMC meeting has been hotter-than-expected, Powell will likely continue his hawkish tone (surprise, surprise) but with many senators already publicly lashing out at the Fed for hiking rates too much (Senator Elizabeth Warren for one), he will also try to strike a measured tone and not break new hawkish ground in front of the senators.


  • The second day of testimony in these events is usually anti-climactic, especially when it’s in front of the House committee. The serious, thoughtful questions usually come from the Senate-side while the House members can be prone to grandstanding and looking to score political points and soundbites for the folks back home. So, we don’t expect much new to come from the second day of testimony except for some headlining grabbing by congressmen, but Powell has shown he is adept at avoiding any overt clashes with committee members.


  • Powell’s goal will be to give no hints that a pivot is near, while also conveying that the Fed is being watchful for any signs of economic weakness that to date have been few and far between, and to keeping relations with his Congressional overseers in a good place.


2yr – 10yr Treasury Curve Inversions and Past Recessions (Red bars)



Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.65 5.43 5.33 5.29 5.25 5.71
0.50 5.64 5.41 5.27 5.18 5.11 5.60
1.00 5.63 5.37 5.23 5.14 5.02 5.47
2.00 5.36 5.18 5.06 4.90 NA
3.00 5.01 4.84 NA
4.00 4.79 NA
5.00 4.75 NA
10.00 NA

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Published: 03/06/23 Author: Thomas R. Fitzgerald