Weaker Jobs Signal, Stronger Prices Highlight Potential Fed Dilemma

• Lackluster new U.S. jobs data and a weak report on manufacturing highlight an emerging concern among Federal Reserve (Fed) officials that employment could slip even as the risk of a tariff-driven round of inflation limits their ability to do anything about it.
• New data from Intuit's Small Business Index, compiled from the company's business software clients, showed the smallest firms shed around 98,000 jobs in March, a 0.82% decline from February.
• Data on hiring and layoffs for February showed a job market that was potentially losing steam more broadly, with a drop in job openings, a slight rise in layoffs, worker quit rates similar to those during the languid job market of the mid-2010s, and near balance in the demand for and supply of available employees.
• While investors following the report boosted bets the Fed would cut rates three times this year more than central bank officials are projecting, a separate report on manufacturing sent a more confusing signal.
• The Institute for Supply Management index of manufacturing activity fell, but its measure of prices paid by companies rose. "The manufacturing sector is showing the first signs that stagflation may be coming for the broader economy," wrote Inflation Insights President Omair Sharif, noting the price measure in the survey rose at the fastest pace since mid-2022. This could be a confounding situation for the Fed.
• Policymakers have said they will keep their benchmark policy rate in the current 4.25% to 4.5% range as they wait for a clearer understanding of how the tariffs and other policy changes being rolled out by President Donald Trump influence the economy. However, one near-term impact that concerns them - a weakening economy coupled with rising prices - offers no easy monetary policy response.
• New data on job growth and the unemployment rate for March will be released on Friday.

(Source: Reuters)