What should investors expect from the Federal Reserve after latest jobs data?

Investors looking at the Federal Reserve after the latest jobs data got a rough answer on Friday.

The labor market is getting weaker, inflation is still above the Fed’s 2% target, and officials now have less room to sound comfortable.

The Bureau of Labor Statistics said nonfarm payrolls fell by 92,000 in February. Economists had expected a gain of 50,000. It was the third jobs drop in the past five months. That report set up a sharp debate inside the Fed. Mary Daly, Stephen Miran, and Michelle Bowman all reacted Friday, and all three comments mattered because officials meet again on March 17-18 in Washington.

Mary Daly says weak February hiring is forcing the Fed to weigh jobs against inflation

San Francisco Federal Reserve President Mary Daly said Friday that the weak February jobs report had made policymaking harder. In an interview on Friday, Mary did not commit to a position on rates. She said the labor market is softening while inflation is still above target, and that makes the next decision more difficult.

Mary said, “This jobs market report has got my attention.” She also said, “I don’t think you can look through this report, but I also don’t think you should make more of it than one month of data.”

Mary also compared the current moment with 2019, when inflation was below target and rate cuts were easier to justify. She said this time is different because inflation has stayed above target for some time.

Mary said, “It’s a very different universe than when we have inflation below our target.” She added, “But right now we have inflation printing above target. It’s been printing above target for some time, so it’s really a balance of risks calculation, and I hope the 75 basis points we did last year would put a floor underneath the labor market.”

After the report, futures traders raised the odds of rate cuts. They pulled the next expected cut forward to July and increased the probability of two cuts by year-end. Mary also said the Fed would have a hard time making the case for a hike when there is no clear sign the labor market is steady.

She said, “I think the important thing is that it’s really hard to hike right now in a world where … we don’t have any evidence that [the labor market is] quite steady. So I think we just need more time.” Mary does not vote this year on the Federal Open Market Committee, but she will vote again in 2027.

Stephen Miran and Michelle Bowman say the Fed may need to cut more after weak jobs data

Federal Reserve Governor Stephen Miran said Friday that the weak February jobs report supports the case for lower rates. Speaking on Money Movers, Stephen said, “I think that we don’t have an inflation problem.” He also said:

“I think that the labor market can use more accommodation from monetary policy. And I don’t see having a modestly restrictive stance of monetary policy as opposed to a neutral stance as being appropriate. I think being close to neutral is appropriate.”

Stephen said he sees the neutral rate as about one full percentage point lower. At the December meeting, the consensus among Fed officials was that neutral is around 3.1%, which points to two more cuts, as Cryptopolitan reported at the time.

Stephen has also argued that stubborn inflation readings are being distorted by how the Commerce and Labor departments measure prices.

One example he gave was portfolio management fees, which rise in dollar terms when stock markets go up even if the actual fee rate does not change.

Stephen also said the recent jump in oil prices linked to the Iran war is less worrying for policy. He said the Federal Reserve usually does not respond to oil shocks like that because they lift headline inflation but often do not change the medium-term path of core inflation.

Stephen said, “Typically, the Federal Reserve doesn’t respond to higher oil prices like that. It [boosts] headline inflation, but it tends to be a one-off shock.”

He added that:-

“When you think about core inflation [which does not include energy prices], it tends to be more predictive of where inflation is going over the medium term than headline inflation.”

Fed’s Vice Chair for Supervision Michelle Bowman also signaled support for more cuts after the weak report.

In an interview on Fox Business, Michelle said she was fine with holding rates at the January meeting, but the February data changed the picture.

Michelle said, “I was fine with holding at our January meeting, but now that we’ve seen that the labor market, maybe that was an anomaly,” referring to strong January job creation.

Michelle then added that the new data “confirms to me that the labor market continues to be weak, and it could use some support from our policy rate.”

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