February non-farm payrolls raise employment doubts, "New Federal Reserve News Agency": The Federal Reserve fears the situation is approaching

In February, the U.S. non-farm payroll unexpectedly declined significantly, shaking the previous assessment of a stabilizing labor market, while the Federal Reserve faces a dilemma of softening employment and high inflation. The non-farm payroll report released on Friday, March 6, showed that the non-farm employment population decreased by 92,000 in February, marking the second-largest monthly decline since the COVID-19 pandemic, while analysts had expected an increase of 55,000; the unemployment rate in February did not remain flat at January's 4.3% as analysts had anticipated, but instead rose to 4.4%. At the same time, conflicts in the Middle East have driven up energy prices, further exacerbating inflationary pressures. The combination of weak employment and rising oil prices has made it more challenging for the Federal Reserve to choose between maintaining employment and reducing inflation. Several Federal Reserve officials and Wall Street economists have expressed concerns about this non-farm payroll report, but generally stated that they would not hastily shift their stance based on a single month's data. Nick Timiraos, the chief economics reporter for The Wall Street Journal, known as the "new Federal Reserve communications agency," pointed out that this report brings the Federal Reserve "one step closer" to its most feared scenario—simultaneous inflation rise and employment decline. The interest rate swap market indicates that traders currently expect the Federal Reserve to cut rates an additional one to two times this year. Report Data: Employment, Wages, and Participation Rate Weaken Across the Board The non-farm payroll report released by the U.S. Bureau of Labor Statistics (BLS) on Friday showed that the decline in U.S. employment in February was widespread. The leisure and hospitality industry, as well as the construction industry, experienced declines due to severe weather, while manufacturing employment fell to a four-year low, and layoffs occurred in healthcare, transportation and warehousing, and information sectors. Over 30,000 employees of Kaiser Permanente were on strike for most of February, directly impacting healthcare employment data. Revisions to the data from the previous two months further exacerbated the gloomy outlook for the labor market. December's employment population was revised down from an increase of 48,000 to a decrease of 17,000, while January's new employment population was slightly revised up from 126,000 to 130,000, resulting in a net downward revision of 69,000 for the two months combined. Wage growth remained strong. In February, the average hourly wage increased by 3.8% year-on-year and 0.4% month-on-month, both exceeding expectations by 0.1 percentage points, marking the second consecutive month of a 0.4% monthly increase, adding uncertainty to the inflation outlook. The labor force participation rate in February fell from January's 62.5% to 62%, the lowest since 2021, with the participation rate of workers aged 25 to 54 also declining. Reports indicate that the household survey portion of this report incorporated the latest population estimates from the Census Bureau, which were delayed due to the government's prolonged shutdown last year. Following the tightening of immigration policies by the Trump administration last year, population data has been adjusted downward, leading to a contraction in the labor force size and employment levels "New Federal Reserve News Agency": The Fed may only watch and wait for now Nick Timiraos pointed out in his report the deep policy implications of this report, characterizing it as the situation the Federal Reserve has long feared is approaching reality. The report begins by stating: "What the Federal Reserve has always feared is being forced to choose between combating inflation and protecting employment. Friday's employment report brought this dilemma a step closer." Timiraos noted that just weeks ago, the strong January non-farm payroll data had led the market to regain hope in the labor market. The February report extinguished that hope and reactivated concerns that the labor market is quietly deteriorating. Meanwhile, military actions by the U.S. and Israel against Iran have led to the closure of the critical global shipping route, the Strait of Hormuz, threatening widespread energy production and bringing new inflationary pressures to policymakers. Timiraos cited Neel Kashkari, the president of the Minneapolis Federal Reserve, who has voting rights on the Federal Open Market Committee (FOMC) this year, warning that the situation may be becoming a "replica" of the Russia-Ukraine conflict, reminding the Fed not to repeat the mistake of deeming inflation a temporary rise in 2021: "If this ultimately turns out to be another global commodity shock, do we really want to go through 'transitory (inflation) 2.0' again?" Timiraos also pointed out that the benchmark 10-year U.S. Treasury yield reacted mildly to the employment data released this Friday, indicating that investors believe the Fed's room to cut rates is significantly constrained in the context of an increasingly uncomfortable inflation outlook. Timiraos quoted Austan Goolsbee, the president of the Chicago Federal Reserve who will have voting rights on the FOMC next year, stating that once inflation expectations are shaken, they are difficult to repair—"like a sunburn. By the time you see it, you regret not applying sunscreen earlier." Goolsbee said this Friday: "We should not overreact to one month's data, but an environment where both inflation and unemployment are rising is certainly not good for central banks." Regarding the Fed's next steps, Timiraos judged: "Currently, Fed officials may only watch and wait. Fed Chairman Jerome Powell urged other FOMC members to cut rates three times until the end of last year, but each rate cut sparked increasing controversy within the 12-member rate-setting committee of the Fed. Officials have made it clear that they are not in a hurry to adjust rates at the meeting later this month, and even if one month's data is concerning, it is unlikely to shake this position." Timiraos believes that if the unemployment rate continues to rise in the coming months, the Fed may restart rate cuts in the middle of this year. However, if inflation data rises again before that, internal resistance will significantly increase. He concluded that a central bank facing both softening employment and the risk of renewed inflation "has almost no good choices." Wall Street: The Judgment of a Stable Job Market Collapses, but Panic is Premature This data has dealt a heavy blow to Wall Street's previous judgment that the job market had bottomed out and stabilized, with varying reactions from different institutions. Samuel Tombs, Chief U.S. Economist at Pantheon Macroeconomics, expressed harshly: "With this report, the judgment that the job market has turned from crisis to stability has completely collapsed." Omair Sharif, President of Inflation Insights, pointed to the deep vulnerabilities in the job market as the root of the problem: "This indicates that the labor market has weakened to such an extent—31,000 healthcare workers have gone on strike, and the entire market cannot bear it because other industries have not increased their workforce at all." Sharif characterized the current situation as "a mix of a weakening job market and potential inflationary pressures, which is quite tricky." Stephen Stanley, Chief U.S. Economist at Santander Capital Markets, took a more cautious stance: "The strong performance in January and the decline in February should be viewed together. Is it time to panic? No." Olu Sonola, Head of U.S. Economics at Fitch Ratings, stated: "Just when the market thought the job market was stabilizing, this report dealt a heavy blow to that judgment. From any perspective, it's bad news." Economists Anna Wong, Stuart Paul, and Chris G. Collins from Bloomberg Economics believe that the weak employment data in February indicates fragility in recent job stability, leaning towards characterizing the current state as "cooling" rather than "sharply deteriorating," and expect this will strengthen the case for the Federal Reserve to cut rates within the year. Michael Pugliese, Senior Economist at Wells Fargo, raised the core question: "You never completely change the narrative based on one report, but it does raise questions about how solid job stability really is. Is it fragile, or has it been firmly established? The gap between the two is significant." Federal Reserve Officials: More Concerned About Employment, Leaning Towards Keeping Policy Steady This Month Several Federal Reserve officials quickly spoke out on the day the report was released, this Friday, acknowledging that the data was disappointing, but none signaled an urgency to adjust policy. Chicago Fed President Charles Evans told the media: "Today's employment report is disappointing. If this continues for the next few months, it will be a concerning signal for the labor market." Mary Daly, President of the San Francisco Fed, who will have voting rights at the FOMC meeting next year, stated in an interview: "Hoping for the job market to stabilize may be overly optimistic; we really need to closely monitor the labor market." Susan Collins, President of the Boston Fed, who will have voting rights at the FOMC meeting in 2028, and Beth Hammack, President of the Cleveland Fed, who has voting rights this year, both expressed that they still believe interest rates should remain unchanged "for some time." Federal Reserve Governor Christopher Waller, who will permanently hold voting rights at FOMC meetings during his term, stated before the report was released that he expects the conflict in Iran will not have a lasting impact on inflation, but acknowledged that consumers will feel the price shock at the pump. He also pointed out that if the job market continues to weaken, the question of "what justification do you have for inaction" will become unavoidable. The Federal Reserve will enter a quiet period after midnight on Saturday ahead of the FOMC monetary policy meeting on the 17th and 18th of this month, meaning that starting this weekend, Fed officials will no longer publicly comment on monetary policy. The market generally expects that this month's meeting will not change the interest rate path, remaining unchanged like the last meeting at the end of January. Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at your own risk