The most recent U.S. jobs report was fairly superb. Economists have been anticipating wholesome development of round 200,000 in January, however the non-farms payrolls grew by greater than double that, a blowout 517,000. This got here towards the backdrop of large tech layoffs by firms together with Google and Microsoft, investor expectations of easing inflation and an impending recession that might decelerate the economic system. By the tip of Friday, a beaming Joe Biden was saying his financial plan to extend the variety of jobs within the U.S. whereas combating inflation was working. And by this Monday, his Treasury Secretary Janet Yellen was mentioning that half 1,000,000 jobs and the bottom unemployment in 50 years don’t point out a looming recession. 

However there’s an issue with all this excellent news: the Federal Reserve doesn’t need this a lot job development. Jobs development was a key motive cited by the Fed final month because it hiked rates of interest within the hopes of reining in inflation, whereas the markets had priced in an altogether extra reasonable tempo of job development, to go together with slowing inflation and a gentle (or worse) recession. Surveying the scene, Goldman Sachs sees an enormous change for the yr forward. 

Markets had priced in rate of interest cuts by the tip of this yr earlier than Friday’s report. Jan Hatzius, Goldman Sachs’ chief economist, thinks that the blowout January jobs report means the Fed is now unlikely to scale back rates of interest until 2024, and which means markets may have quite a lot of repricing to do.

“We expect we’ll get one other couple of hikes that take you to the low-5s relatively than the high-4s,” Hatzius advised CNBC’s Squawk on the Avenue on Friday referring to the inflation price, which is presently at 6.5% towards the Fed’s goal price of two%. “Extra importantly, we don’t count on cuts within the funds price till properly into 2024 in our baseline forecasts.”

“The economic system continues to be fairly sturdy, the labor market is actually nonetheless very sturdy. And whereas inflation is coming down, even when we get to three% by the tip of this yr and possibly 2.5% by 2024, that’s nonetheless above the goal,” Hatzius stated. That might make the Fed proceed its hikes or keep charges, relatively than deliver them down, because the monetary markets count on. 

He did warning that “outlier numbers” just like the January jobs information should be taken with a grain of salt as a result of problem in seasonal adjustment in the course of the month. Hatzius famous that whereas the consensus of most economists is that the economic system is headed for a recession, he sees “no signal of that” in gentle of the roles report and different indicators such because the non-manufacturing ISM survey. “Clearly, the economic system is doing lots higher than many forecasters and certainly, consensus of forecasters is saying.”