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Yields, Expectations for Rate Hike Soar After Jobs Report

by Chloe Baker
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On Friday, US bond prices changed after the recent news about US jobs. Most markets around Europe were closed because it was Good Friday, so US bonds were some of the only markets open to make a response. The report showed that there were fewer jobs created than expected last month, but overall jobs are still steady.

The new data is very important because it might help the Federal Reserve make a difficult choice concerning interest rates. The Fed has to decide if they should keep raising rates to lessen inflation or wait and see, even though there are signs that the economy might be slowing down and banks have been affected by earlier rate increases.

At the end of the day on Friday, it looked like the Federal Reserve would raise rates another quarter point at its next meeting in May. This was indicated by the rising yields for both 10-year and 2-year Treasury bonds. The 10-year yield increased to 3.40% from 3.30%, while the two-year rate went up to 3.96% from 3.83%.

People think it’s likely that the Fed (the Federal Reserve, which controls the United States’ money) will raise interest rates in May. Before this, they thought it was just as likely that the Fed would do nothing with their money. But it hasn’t done nothing for more than a year now.

Last Friday, companies added 236,000 new jobs which is lower than February’s 326,000 and not quite what economists expected. Wages went up by 0.3% as experts had predicted but the yearly wage increase slowed down to 4.2%, down from its previous rate of 4.6%.

The Federal Reserve (the “Fed”) wants the job market to be slower. To lower inflation, it has to raise rates; however, this means that the whole economy will slow down which increases the chance of a recession and could make stocks and other investments not worth as much money.

Brian Jacobsen from Allspring Global Investments said that the job market is slowing down. We can see this because although jobs are still being added overall, people aren’t working as many hours and these new jobs are not spread out evenly.

Jacobsen doesn’t think the Fed should raise rates because of the jobs report alone. He said the government will tell us what prices people are paying on Wednesday and those prices might be more important to decide if rates should change. Economists believe the prices people pay won’t go down too much, even though it’s lower than the Fed’s target.

This week, a few reports suggested that the economy was slowing down. One report showed that the U.S. manufacturing industry is having its worst performance since the start of the pandemic last summer, and another found that service industries weren’t doing as well as they were expected to be. Additionally, employers had fewer job openings than usual all over the country.

Experts predict the economy will likely face a recession this year. But there’s still hope that The Federal Reserve (the Fed) can raise rates just enough to stop inflation without causing a major recession. These plans are being complicated by the bond market which thinks the Fed will have to lower rates later in the year to help keep the economy healthy.

Cutting interest rates can be beneficial to financial markets and the economy, but it might cause inflation, too. The Federal Reserve has said that they don’t plan to reduce rates this year and are concerned about stopping inflation before it gets out of hand.

Gregory Daco, the Chief Economist at EY said that there will be below-average job growth and a slight increase in unemployment, which supports the idea of a recession.

Before this report was published, stocks went up in many parts of Asia. For example, Shanghai’s stocks increased by 0.5%, Tokyo’s Nikkei 225 rose by 0.2%, and Seoul’s Kospi jumped 1.3%. Other countries such as Thailand, Taiwan, and Malaysia also gained.

___ Joe McDonald wrote this news that is related to business.

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