Investors continue to digest Jerome Powell's signals after the Federal Reserve chief told lawmakers that no decision has yet been made on the pace of future rate hikes. However, he reiterated that an acceleration of tightening was expected, and peak rates could be higher than expected if economic data demand it. "We have not made any decision yet about the March meeting," Powell told the House Financial Services committee. "If — and I stress that no decision has been made on this — but if the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes," he said.
Notably, Powell's statements were softer than the ones he made in front of the Senate. All this comes before the next round of US jobs data, which exceeded economists' expectations in January and is likely to surprise many traders with their February growth.
The data will come out tomorrow afternoon, bolstering bets that Fed policymakers have no choice but to return to aggressive rate hikes.
The inversion between the 2-year and 10-year Treasury bond yields, which is considered a reliable sign of a recession, fell to about 106 basis points. On Wednesday, the indicator surpassed 110 basis points, the highest in more than four decades.
Friday's jobs report is an important event for the markets, and stronger-than-forecast numbers are likely to cause market participants to revise their expectations for the pace of rate hikes at the March 21-22 Fed meeting. Economists are predicting an increase of 225,000 jobs in February, about half the number seen in January. Importantly, even that figure suggests that the US economy continues to create jobs at a strong pace.
Crude oil prices are down for the third straight day due to expectations of higher rates.
As for the S&P 500 index, the pressure on risky assets remains. The index may rise only if bulls manage to get above $4,010 today. After that, they are likely to drag the price higher to $4,038. Bulls also need to control the level of $4,064, which will allow them to cancel the bear market. After that, we can expect a more confident surge to $4,001. If the index declines amid strong labor market statistics and a lack of demand, bulls will have to protect $3,970. If this level is broken through, the trading instrument may be pushed down to $3,950 and $3,920.