Policymakers hold serve

In a relatively quiet week for economic data, markets slowed down, with stock prices rising and bond prices falling—typically a sign of good risk appetite. 

The key event of the week was Federal Reserve Chair Jerome Powell’s 60 Minutes appearance on Sunday night (Feb. 4), during which he downplayed the likelihood policymakers will lower the federal funds rate soon. Reinforced by several other Fed speakers later in the week, Powell remains wary of cutting rates prematurely. This jawboning cooled the market’s enthusiasm for a pivot, making a mid-year start to rate cuts more likely.

The crucial services component of economic growth, put up a solid January performance, as measured by the ISM index. The employment component of the index rose from 43.8 to 50.5, as respondents cited a highly competitive market due to salary, demand and turnover. But the gain was fairly narrow, in only construction, accommodation and food services, and public administration. Respondents also noted steady business and optimism about the economy due to expected interest rate cuts. However, they remain cautious due to lingering inflation, cost pressures and geopolitical conflicts. Weekly jobless claims finally rolled over, falling to 218,000. Continuing claims fell by 23,000, to 1.87 million, but it remains at very low levels. 

This week brings updated data on wholesale and CPI retail inflation, as well as retail sales, jobless claims and February consumer confidence.