Fed Chairman Powell pushing back a larger 75 basis points gain in the near future dampens bets on the Fed's earlier perceived aggressive policy tightening. From now on, the attention of the markets will be turned to very important labor data tomorrow. A tightening labor market means the Fed continues to see upside risks to the price outlook. The April jobs report is expected to include an unemployment rate of 3.5%, matching the pre-Covid low. Average hourly earnings are also expected to increase by 0.4% monthly and 5.5% year-on-year.

Payrolls expected to moderate slightly in April compared to the March growth rate. The median market forecast for April employment is 380K. There is still room for the recovery in the labor market to continue for the rest of the year, as the workforce is still significantly below the pre-pandemic trend. Declining Covid concerns, high inflation, declining household savings and strong wage growth mean the public health situation is affordable and financial income motivation is high.

As the demand for consumer services strengthens rapidly and consumption rotates from goods to services, it continues to add workers at a strong pace, especially in the entertainment and accommodation sector. Recent data point to a slowdown in demand in the goods sectors. Prices also softened. Declining profits may lead to a moderation in hiring in related industries such as warehouse and shipping.

Returning to the Fed's hawkishness, CME Fedwatch and terminal expectations point to a 200 basis point cumulative rate hike expectation at the end of the year. Considering that the new rate hike standard is 50 basis points, there may be a Fed that will go slower than before. Had the Fed raised rates by 75 basis points, it would have made its hardest move since 1994. The 50 basis point increase was also a first after 2000. It's still difficult for the Fed to raise real rates too much, as the economy will have to withstand the many risks of external slowdowns and not increase its vulnerability with excessively high interest rates. As of June 1, the Fed's $8.9 trillion balance sheet will begin to shrink.

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Hibya Haber Ajansı