“Of course a headache,” Wall Street analysts respond.

January saw a stunning surge in employment growth. The Labor Department’s monthly report showed that 517,000 jobs were added to the US economy, well above Wall Street’s expectations.

The release showed that hiring remains stronger than ever despite the Federal Reserve’s campaign to weaken the labor market and curb inflation.

Many analysts have lamented the continued rise in employment for fear that it will send a signal to Federal Reserve officials to stay on course with their rate hike campaign. Some have interpreted the wage cuts as a sign of easing inflation and expressed concern that excessive tightening could lead to a recession in the US.

“The key is that unemployment has fallen more than expected and wages have not gotten out of hand. This reduces the need for the Fed to further contain the economy,” said David Russell, vice president of market intelligence at TradeStation Group.

The unemployment rate fell to 3.4% from an estimate of 3.6%, the lowest unemployment rate since May 1969.

Following the release of the employment data, Wall Street analysts immediately contacted us to share their thoughts. Here are their results:

David Russell, Vice President of Market Research, TradeStation Group

“Some areas that struggled during the pandemic, especially hospitality, are just bouncing back. While the headlines of 517,000 were shocking, they don’t really derail the story of improving inflation that has surfaced in recent months.”

Josh Jemner, Investment Strategy Analyst, ClearBridge Investments

“Growth in jobs and hours worked helped lift compound weekly payrolls — a proxy for total income that takes jobs, hours and wages into account and is closely tied to consumption — up 1.5%, the strongest since August 2020 the year when the labor market initially recovers from the pandemic shock and is stronger than anything in the decade leading up to the pandemic, or even leading to the global financial crisis. Such strength is likely to keep inflation in check as demand needs to be supported by higher income growth.”

Richard de Chazal, William Blair’s macroanalyst

“This came as a huge surprise and clearly raises some questions about the speed of any economic downturn, as well as the timing of the suspension of the Fed’s rate hikes and, eventually, the start of its cuts. While some commentators have focused on a non-seasonal decline of 2.5 million jobs, the reality is that this is very much in line with previous January reports, so there’s not much evidence of seasonal distortion.”

Charlie Ripley, Senior Investment Strategist, Allianz Investment Management

“Today’s wage figure is certainly a headache for most market participants as the 517k gain was well above estimates and the unemployment rate was moving in the opposite direction the Fed would like to see. sectors, especially the leisure and hospitality sectors. A win for the Fed in a report like this should be the fact that pressure on wages continues to ease as average hourly earnings fell from 4.8% to 4.4% year-on-year. Overall, the latest labor market data underscores the view that monetary policy is lagging and it will take longer for the economy to feel the full impact of the Fed’s 4.75% discount rate.”

Ian Shepherdson, Chief Economist at Pantheon Macroeconomics

“We think policymakers should put more weight on improving wage data, which suggests they are overly concerned about low unemployment and a clear decline in core inflation, but Chairman Powell repeatedly stressed last week that the Fed believes the market labor is too tight, and the latest data on wages and unemployment do not change this picture.”

Quincy Crosby, Chief Global Strategist at LPL Financial

“The unexpectedly strong payroll report, which saw the unemployment rate fall to 3.4%, coupled with disappointing earnings reports from Alphabet and Apple, has raised concerns among market participants that the Fed’s path to price stability will take longer than futures expected. market — and even longer than the Fed expected. An undeniably strong report is what markets are hoping to get out of a recession, but not what you want to see when expectations of an end to the Fed’s rate hike campaign are suddenly challenged by a much stronger labor market.

Bill Adams, Chief Economist, Comerica Bank

“The January jobs report raises the possibility that the final Fed rate will exceed 5%. Their decision will depend on whether other economic data confirms this employment report over the next few months. Wage growth in the January jobs report is still slowing down, but its other details will make the Fed more concerned about the risk of overheating.”

Mike Lowengart, Head of Model Portfolio Building, Morgan Stanley Global Investment Office

“Wages blowing expectations out of the water are adding fuel to the Fed’s rate hike campaign. It’s getting harder to argue that a rate cut could happen in 2023 if the labor market can continue like this, especially given that it remains to be seen how quickly inflation will come down even though we’ve peaked. And the growth was also not concentrated in one sector, but growth was observed across the board, highlighting the resilience of this labor market in a challenging environment. There’s a lot to digest this week, so it’s no wonder this report is pushing the market.”

Alexandra Wilson-Elizondo, Head of Retail Investments in Various Assets, Goldman Sachs Asset Management

“The report will make insurance cuts less likely as there are no significant signs of stress that could trigger a rate cut. In other words, this outlook gives the Fed more scope for macroeconomic stagnation and risk remains skewed towards recession-inducing overtightening.”

US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, USA, February 1, 2023.  The US Federal Reserve made its first rate hike of the new year on Wednesday.  The central bank raised rates by a quarter of a percentage point, the eighth rate hike by the Fed since the tightening began in March last year.  (Photo by Liu Jie/Xinhua via Getty Images)

US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, USA, February 1, 2023. The US Federal Reserve made its first rate hike of the new year on Wednesday. The central bank raised rates by a quarter of a percentage point, the eighth rate hike by the Fed since the tightening began in March last year. (Photo by Liu Jie/Xinhua via Getty Images)

Gregory Dako, chief economist at EY Parthenon

“This report will encourage a 25 basis point Fed rate hike in March, but it does not address the question of whether the Fed will pause the tightening cycle in March or later in the spring. Indeed, the strength of the labor market is likely to sway policies towards tighter amid fears that wage pressures could remain tighter…Watching significant easing in financial conditions since his press conference, Fed Chairman Powell may will have to lean towards more tightening than markets are currently estimating as the hellish Fed tango continues.”

Geoffrey Roach, chief economist at LPL Financial

“The labor market is still strong, offsetting the risk of a slowdown in consumer spending. In addition, a slowdown in average hourly wages should ease inflationary pressures in the near term as wage growth returns to its previous levels. Without a doubt, the Fed will continue to raise rates at the level of the next meeting in order to slow down demand in the economy.”

Steve Rick, Chief Economist at CUNA Mutual Group

“The January Consumer Price Index report showed that prices declined from the previous month for the first time since May 2020. The decline in prices indicates that the Fed’s aggressive rate hike is starting to fight inflation, but is not yet having a direct impact on the unemployment rate. Ideally, by 2024 the economy will reach the target of 2% inflation, 2% economic growth and a natural unemployment rate of 4.5%.”

Dylan Kroll is a reporter and researcher for Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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