Jobs Surprise Complicates Picture for the Fed
The central bank risks worsening the disconnect between markets and the real economy.
Something was added to his plate.
Photographer: Andrew Harrer/Bloomberg
This week has started where last week left off for financial markets and policy makers — that is, trying to assess how much of Friday’s surprisingly good U.S. jobs report is real and how much of it could end up being a head fake. Although markets are not waiting for the answer, and understandably so given the deep win-win conditioning they have embraced, policy makers are in a tougher situation. This is particularly the case for Federal Reserve officials, who are preparing for their two-day policy meeting starting Tuesday. In addition to parsing the latest employment data, they have to deal with the added complexity of the significant bear steepening in the Treasury market yield curve recently.
As detailed here, the impressively strong jobs report may be a function of some combination of the following: A notably resilient U.S. economy that is already picking up steam, the impact of policy measures such as the Paycheck Protection Program, and data issues that may be subject to revision. It’s unlikely that we will be able to sort out with confidence the relative contributions of these three factors before the next monthly jobs report at the earliest.