Markets Rise as Investors Like the Look of Hiring and Wage Trends

Toward the end of the year, data began to suggest that inflation may have begun to moderate. However, the labor market remains a crucial piece of the puzzle, with intense competition for workers pushing wages higher and stoking inflation. In other words, a strong labor market has been bad for the Fed’s mission to bring down inflation.

“Recent inflation readings have lifted investors’ spirits, but ongoing labor market tightness suggests that interest rates might have to go higher for longer than markets currently imply,” said Ronald Temple, the chief market strategist at Lazard, before the numbers were released.

That’s why easing wage growth was welcomed on Friday by stock investors eager for the end of the Fed’s interest rate increases, which have raised costs for companies and helped drag stock prices lower.

Mr. Temple’s comments also point to a shift in expectations on interest rates, with many investors revising their outlooks for how high Fed officials will raise rates and how long they will keep borrowing costs elevated.

The two-year Treasury yield, which is sensitive to changes in Fed policy, tumbled, trading at just under 4.3 percent. Investors are now betting on a quarter-point increase in rates at the Fed’s next meeting in February, a step down from December’s half-point rise, which was already a drop from the jumbo three-quarter-point increases that came at the previous four meetings. The Fed’s key policy rate is currently set in a range of 4.25 to 4.5 percent.

Article source: https://www.nytimes.com/2023/01/06/business/markets-stocks-jobs-inflation.html