Employment data released on Friday came in above expectations, but it was mostly ignored by market participants as the Russian/Ukraine war continues to be the key driver for markets. Analysts at Wells Fargo believe that so long as the Russia-Ukraine conflict does not significantly escalate, the FOMC is poised to begin a tightening cycle on March 16 considering the solid state of the labor market alongside the most significant inflation in decades.

Key Quotes: 

“Job growth continued at an impressive pace in February, with employers adding 678K new jobs. The strong pace of hiring comes as the availability of workers continues to improve. The labor force participation rate ticked higher in February, but the jobs market continues to tighten with the unemployment rate falling to a fresh cycle low of 3.8%. Average hourly earnings growth paused in February, which should ease concerns that wages—and therefore inflation—are running away.”

“This is not to say the labor market has reached nirvana. Nonfarm payrolls are still 2.1 million below February 2020 levels, and the distribution of recouped jobs is uneven across different industries, regions and demographic groups. That said, the key limiting factor to faster job growth continues to be labor supply, even with the improvement of late, rather than labor demand.”

“And with inflation well-above the Federal Reserve's target, the case for the first rate hike since COVID began is clear. So long as the Russia-Ukraine conflict does not significantly escalate, the FOMC appears poised to begin a tightening cycle on March 16.”