Back to the Drawing Board

The January nonfarm payroll number was a blockbuster employment number while the revisions to 2022 numbers added more strength to the labor market than what had been reported previously. Furthermore, the 3.4% rate of unemployment matched the rate of unemployment in May of 1969.

Eugenio J. Alemán, PhD,
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This report will send many economists, including us, back to the drawing board as we digest this January employment report and try to incorporate it into our GDP forecast, a forecast that we will have ready for next week.

What we can definitely conclude today is that Federal Reserve (Fed) Chairman Jerome Powell’s “a couple of more times” comment during the press conference after the Federal Open Market Committee decision on Wednesday of this week probably makes much more sense. Thus, we are changing our forecast for the federal funds rate terminal rate for this cycle from 4.75% to 5.00% to 5.00% to 5.25% because of the need to continue to put downward pressure on the U.S. labor market and slow service sector employment.