Chair Powell Quells Labor-Driven Flight to Quality

Rates fall on labor data but rebound after Powell comments. Treasury yields declined across the curve following this morning’s labor data, which was generally weaker than expected and spurred bets that the Fed would be more aggressive with monetary easing. However, the narrative flipped after Chair Powell offered relatively hawkish comments, prompting a 10bps rise from intraday lows. The 2-year yield closed 4 bps higher on the session at 4.00% while the 10-year yield climbed 2 bps to 4.30%. Equities also climbed from intraday lows, with the S&P 500 and NASDAQ up 0.55% and 0.70%, respectively.

Labor market fared worse than expected in February. US hiring growth was below estimates in February, with nonfarm payrolls at 151k while January’s figure was revised 18k lower to 125k. Coupled with a 0.1% uptick in the unemployment rate, the data was slightly underwhelming but did not cause significant concerns, especially after Chair Powell argued the economy is healthy. Meanwhile, a 0.2% decline in average hourly earnings (0.3%) signaled that the labor market is less likely to create inflationary pressures, though strong wages will be crucial for consumer spending amid increased economic uncertainty.

Fed Chair Powell says the Fed will remain patient. Despite heightened economic volatility, the Fed appears to be in no rush to adjust monetary policy. Chair Powell argued today that the Fed is “well positioned” due to continued US economic strength, though he acknowledged “recent developments… especially trade policy” that could impact spending and investment. Powell also believes that the battle against inflation will continue to be “bumpy,” and he noted recent data that showed an uptick in inflation expectations. However, he cited progress with “categories that remain elevated” and said that the labor market is not a significant source of inflation.