Economic growth, Fed rate increase, inflation reports, jobs report…what does it all mean?

The period from the end of January through the beginning of February was jammed packed with data and events which will help shape 2023 from an economic standpoint. Now that the data is in the books, we can look back. To start, we had the first measure of economic growth for the last quarter of 2022. As we indicated previously, the growth rate of 2.9% was stronger than expected.

We then had the first meeting of the Federal Reserve for the year. It was expected that the Fed would raise rates but continue at a moderate pace. The increase of 0.25% was in line with expectations and indications are that we are approaching the end of this period of tightening. Recent inflation reports showing inflation moderating have enabled the Fed to ease off the pedal a bit. The announcement after the meeting acknowledged this progress but fell well short of declaring the war is over.

Finally, the January jobs report was released on Friday of last week. This represents the first data of the new year. The surprise increase of over a half-million jobs and the lowest unemployment rate in over 50 years were strong indications that the job machine continues to roll on. While this is good news for the economy, it does give the excuse for the Fed to keep rates elevated for a longer period. Another inflation indicator, wage growth, came in at 4.4% annually, also higher than expected. All in all, the markets seemed to be confused as to what they have seen as we kicked off 2023, as the warnings of a recession seemed to be off the table for now.