Standing tall

The resilience of the U.S. economy was on display last week, as the markets dealt with punch and counterpunch to end the week nearly unchanged. 

Ongoing concern about banking strength continued to seep into markets. Even though First Republic Bank was seized and sold to JP Morgan early in the week, market participants wondered if there were more shoes to drop. Banks had improved their disclosure as they reported generally good first quarter earnings, hoping to end unfounded speculation. But once out of the bottle, fear is difficult to disprove and control. 

The Federal Reserve met midweek and raised the federal funds rate by 0.25%, to a range of 5-5.25%. The meeting’s statement maintained that the banking system is sound. Fed Chair Powell indicated inflation remains well above the Fed’s target, but he opened the door to a potential pause in rate hikes. As always, policymakers will assess incoming economic data to decide what steps to take. But they seem in no hurry to shift from hikes to cuts.

Ending the week on an upbeat note, the Labor Department reported the economy added 253,000 new jobs in April—well above market expectations. Average hourly earnings rose from 4.3% over the last year to 4.4% on stable labor participation, and the unemployment rate fell from 3.5% to 3.4%, tying its lowest level since September 1968. While this is good news for ordinary Americans, it makes the Fed’s job more difficult; its next scheduled meeting is June 14.