Financial News for the Week of March 8th, 2024

With the first quarter entering its final weeks, we received a host of important economic data this week that will help form expectations for the year ahead in financial news. This included a labor market pulse check in addition to Federal Reserve Chair Powell’s semi-annual testimony before Congress. Equity markets continued to notch record highs, with the S&P 500 rising 0.8% on the week, while Treasury yields fell by roughly 10 basis-points as of the time of writing.

The headline release for this week was Friday’s employment report, which showed that 275k jobs had been added in February. While job gains in the prior two months were revised down by a considerable 167k jobs, the economy still saw solid and accelerating job growth moving into 2024 (Chart 1). However, the unemployment rate ticked up by 0.2 percentage-points to 3.9%, in part due to a return of positive labor force growth. On aggregate, the labor market remains healthy but is continuing to moderate towards a more balanced state. This will be welcome news for the Federal Reserve as they target their dual mandate of maximum sustainable employment and price stability.

The shift towards a more balanced risk outlook was also noted in Chair Powell’s testimony to Congressional committees this week. In his remarks he stated that the resilience of the economy and the labor market gave the FOMC time to assess the sustainability of current disinflation trends. While Powell did note that it would likely be necessary to implement less restrictive policy this year, he cautioned against the risk of easing pre-maturely. Solid job growth and an economy that continues to exhibit above-trend growth support Chair Powell’s assessment and our expectation that the FOMC will hold off until July to begin lowering interest rates.

Also on Capitol Hill this week, Congress passed half of the federal spending bills for fiscal year 2024. With funding for six federal departments set to expire on Friday – legislated by the fourth continuing resolution of this cycle passed last week – the House passed a package of appropriation bills on Wednesday for the departments subject to the deadline. Senate approval and the President’s signature is expected ahead of the midnight deadline on Friday. The other six appropriations bills will need to be passed ahead of their March 22nd deadline, but aggregate spending levels are expected to be consistent with the limits previously agreed to by Congress (Chart 2). Removing the near-term risk of a government shutdown is undoubtedly positive, but ongoing structural deficits leave the sustainability of the national debt a long-term risk, which was also noted by Chair Powell in Congress this week.

In the near-term, markets will be closely watching the February CPI inflation data release next week, which is expected to show a deceleration from January’s unexpected uptick. Further progress on disinflation will be required before the Federal Reserve considers shifting its current policy stance.

Andrew Foran, Economist | 416-350-8927