Investing.com – As market players wait on Friday for the latest employment report, previous data and hawkish words from Federal Reserve (Fed) officials have suggested that the numbers in the government data would have to be pretty dire to stop the U.S. central bank from moving ahead with the next phase of accommodative policy removal, while there is also a risk that a strong report could increase the odds for a less gradual tightening of monetary policy.
The U.S. Labor Department will release its February nonfarm payrolls report at 8:30AM ET (13:30GMT) on Friday.
The consensus forecast is that the data will show jobs growth of 200,000, following an increase of 227,000 in January, the unemployment rate is forecast to dip by 0.1% to 4.7%, while average hourly earnings are expected to rise 0.3% after gaining 0.1% a month earlier.
Expectations will be high for the official government data after the ADP’s own monthly report showed Wednesday that hiring had spiked last month with the economy creating no less than 298,000 jobs last month, its strongest reading in nearly 11 years.
Besides the ADP data, Kathy Lien, managing director of FX Strategy for BK Asset Management, noted that evidence for stronger payrolls was seen in the rise in the employment component of ISM non-manufacturing index, the Challenger data that saw a 40% drop in job cuts, the drop in the less volatile four-week average for weekly jobless claims to 236,000 along with the decrease in continuing claims to a 2.058 million and the fact that consumer confidence has hit its highest level since July 2001.
Remarks from several policy makers had also set the bar high for the central bank to continue on the path of policy tightening with special attention paid to Fed chair Janet Yellen’s speech to the Executives’ Club of Chicago on March 3, just prior to the blackout period.
“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said.
“Arguably, the Fed took the mystery out of this next FOMC meeting by fairly clearly signaling a rate hike is coming,” Oregon Economic Forum director Tim Duy wrote.
Hawkish or dovish stance from the Fed hinges on jobs report
“What could hold them back at this point? Only a complete disaster of an employment report,” Duy said.
Danske Bank expressed the same opinion and added what it considered to be the “definition” of disaster:
“We probably need to see jobs growth below 100,000, a higher unemployment rate and no improvement in the weak earnings data in January before the FOMC members change their minds,” these analysts explained in a preview.
On the other hand, a blowout employment report runs the risk of increasing the hawkish stance at the Fed.
“A surge in hiring coupled with a decline in unemployment would be a red flag for the Fed” and cause them to be even more aggressive this year, according to Duy.
“It will give them more reason to front load rate hikes, and, if repeated in the next employment report, would open up the possibility of a May hike,” he explained.
“Monetary policy is not on a preset course, and gradualism is not a promise, only an expectation,” this expert concluded.
Prior to the release, markets are currently pricing in the chance of a rate hike at the March 15 announcement at approximately 89%, according to Investing.com’s Fed Rate Monitor Tool.
Odds first pass the 50% threshold for a second policy tightening at the July meeting, while the probability that the Fed would comply with their December forecast of three hikes in 2017 stood at 62%.