Federal Reserve to raise rates further as Unemployment Rate remains lower

Friday’s US Employment data has confirmed that higher rates by the Federal Reserve and tight credit conditions by commercial banks after the collapse of Silicon Valley Bank (SVB) and Signature Bank had a minimal impact on the US labor market. In March, the US economy added fresh 236K, marginally lower than the consensus of 240K but significantly lower than the former release of 326K. The Unemployment Rate dropped further to 3.5% from the consensus and the prior release of 3.6%.

Less impact of higher rates on the US labor market has strengthened the need for more hikes to arrest the stubborn US inflation. According to money market expectations, 64% of investors are supporting more rate hikes from the Federal Reserve.

US Inflation to provide clarity on Federal Reserve’s interest rate guidance

After the US Nonfarm Payrolls (NFP) data, investors are sticking to Consumer Price Index (CPI) data, which will provide extensive clarity on interest rate guidance. As per the consensus, the headline inflation will soften to 5.2% from the former release of 6.0%. Also, monthly headline CPI would decelerate to 0.3% from 0.4% reported earlier. Oil prices remained lower in March and its effect is expected to get visible in inflationary pressures.

However, the upward-rising US labor cost index due to a shortage of labor is keeping demand for core goods resilient. This might force Federal Reserve chair Jerome Powell to put the last nail in the coffin by pushing rates above 5% to intermediate pivotal.