It was a significant week for economic data releases, highlighted by the first FOMC meeting of the year on Wednesday. While it was a foregone conclusion that the Fed would leave rates unchanged it was important to hear the tone of Fed Chair J. Powell’s speech. Powell adhered mostly to the script, indicating the likely end of the rate-hiking policy and foreseeing potential rate cuts toward the year's end. Emphasizing data dependency, he reiterated the Fed's commitment to making policy decisions based on strong economic data.

The week's pinnacle moment arrived on Friday morning with the Non-Farm Payrolls Report, which surpassed expectations by printing a +353k increase compared to the expected +185k. While the job market's strength aligns with the Fed's narrative of a soft landing for the economy, concerns arise due to the unexpected +.6% month-over-month increase in hourly earnings, surpassing the anticipated +.3%. This inflationary aspect could put the Fed in a bind, especially if it continues to track upwards. Following Friday’s Data, the market sees the March rate cut discussion as finished.

Markets now see very little justification for a hike in March due to the strength of the economy and inflation potentially becoming stickier on its way down to the Fed target. The focus now shifts to the question of "if not March, then when?" Many investors tie this debate to the looming U.S. presidential election, suggesting that the Fed might act earlier than the fall to avoid political labels. With March off the table, the Fed's opportunities for implementing its rate-cutting policy narrow, especially if inflation persists more than initially anticipated. It's worth noting that both the Fed Dot Plot and Governors on the speaking circuit have consistently projected late 2024 for potential rate cuts.