<ul>
<li>February job loss, surge in oil prices raise stagflation concerns</li>
<li>Fed expected to hold rates steady at March meeting</li>
<li>Investors bet on June rate cut amid economic uncertainties</li>
</ul>
By Howard Schneider and Ann Saphir
March 6 (Reuters) - Fresh signs of labor weakness and oil-driven inflation concerns are cornering U.S. Federal Reserve officials into an uncomfortable choice: leave borrowing costs steady to ensure that inflation does not worsen or cut them to shore up a job market that is losing ground. For now, they look poised to wait, even as traders ramped up bets that rate cuts will start in June. That is when President Donald Trump’s nominee for Fed chair, former Fed Governor Kevin Warsh, is expected to take over from current Fed Chair Jerome Powell as lead policymaker at the U.S. central bank. The decision will be a tough call. As oil prices hit $90 a barrel in the wake of U.S.-Israeli attacks on Iran and U.S. gasoline prices jumped from $3 to $3.32 a gallon in a week, a Labor Department report on Friday showed employers unexpectedly shed jobs in February and the unemployment rate rose to 4.4%. Private-sector employers added fewer than 300,000 workers in all of 2025, making it the worst year, excluding the 2020 COVID-19 shock, since 2009, the report showed.
“The hopes that the labor market was steadying - maybe that was too much and we really have to keep our eye on the labor market; but we also have inflation printing above target and oil prices rising,” San Francisco Fed President Mary Daly told CNBC. “Both of our goals are risks now, and we need to keep our eye on both.”
The February jobs numbers were driven lower by labor strikes in the health sector and the ongoing downsizing of the federal government, and Daly and others cautioned about reading too much into one month’s number. Paired with the stronger January report, the two-month average jobs gain is below the 30,000 Daly estimates the economy needs to keep the unemployment rate steady, she said.
Meanwhile, inflation by the Fed’s targeted metric was 2.9% in December and economists expect a report out next week to show it remained there in January.
The Fed aims for 2% inflation, though it has not met that goal for the past five years.
Combined, the dynamics - a war, rising commodity costs and weaker hiring - put the Fed in a “stagflation” vise that policymakers last year had thought they could avoid.
“I remain hopeful-slash-expecting that conditions will improve that will start to see some progress on inflation … and by the end of this year that we would be in a situation that we could commence our march back down to something like the settling point which is below where we are today,” Chicago Fed President Austan Goolsbee told Bloomberg TV, referring to the Fed policy-rate cuts. But he added: “As we get more uncertainties, I kind of think that time at which it makes sense to act keeps getting pushed back.”
<h3>OIL, PRICES AND CONSUMER DEMAND</h3>
The Fed is expected to hold rates steady at its upcoming March 17-18 meeting, but looks poised to have a broader discussion at a moment when key supply-chain risks are again on the table.
In comments on Bloomberg Television, Fed Governor Christopher Waller said he viewed the rise in oil prices as “more like a one-off event” that would not require a Fed response, but also acknowledged the uncertainty if the Iran conflict persists and oil prices keep rising.
“If it’s unwound in … a couple of weeks or even two months, it’s not going to be a big factor down the road,” Waller said. “If it becomes more permanent … Then it’ll start bleeding through to other parts of the economy.”
But policymakers - taking advantage of their last day to make public statements ahead of the usual communications blackout around each Fed meeting - are also likely to put new weight on the labor market after the disappointing February numbers.
“If the labor market continues to go weak … If we get a bad number … the question is, why are you just sitting on your hands” and not trying to bolster the job market with rate cuts, Waller said before the jobs data was released.
Fed Governor Stephen Miran, an advocate of rate cuts since joining the Fed in September, said he continues to feel the labor market needs more support from lower rates, and that rising oil prices may add to that conviction.
“It pulls demand out of the economy as people have to spend more on energy products,” Miran told CNBC. “And so if anything - I’m hesitant to react to what’s going on in oil until we know more - but if anything, it biases me toward even more dovish policy.”
Cleveland Fed President Beth Hammack, one of the Fed’s more hawkish members, remained focused on too-high inflation. “Under my base case, I think policy should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further,” she said.
Boston Fed President Susan Collins likewise called for a “patient, deliberate approach” to setting rates.
Traders priced a June rate cut at about a 51% probability after the jobs data, with another rate cut likely by year-end.

NDAQ

SQQQ

- The U.S. Federal Reserve faces a dilemma between maintaining steady interest rates to control inflation or cutting them to support a weakening job market, exacerbated by surging oil prices and recent job losses.  
- February's labor data revealed an unexpected job loss and rising unemployment, prompting discussions among Fed officials about the potential need for future rate cuts, particularly as a significant shift in leadership is anticipated in June.  
- With inflation still above the Fed's target and ongoing uncertainties in the economy, the Fed is likely to adopt a cautious approach at the upcoming March meeting while considering the impacts of oil prices on consumer demand.

Reuters

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WRAPUP 1-Fed faced with hard choice on weak jobs, high inflation