US jobs report impressed the markets
On April 5, the US jobs report was released, and the data came as a relief to the markets. After dismal job addition numbers in February, job gains rebounded in March.
The rebound laid to rest market concerns regarding a potential recession—at least for the time being.
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President Donald Trump was also happy with the job numbers. He called out the Fed yet again after the release of the report, saying, “I think they should drop rates and get rid of quantitative tightening.” He added about the economy, “You would see a rocket ship. Despite that we’re doing very well.” The White House has been calling for the Fed to cut interest rates by 50 basis points to support the economy (IVV).
Trump calls on the Fed for easing
Trump has often criticized the Fed for increasing interest rates when inflation is still too low. In November 2018, speaking with the Washington Post, he said, “So far, I’m not even a little bit happy with my selection of Jay.” On December 24, Trump tweeted, “The only problem our economy has is the Fed.”
Hawkish to dovish
At the beginning of January, the Fed suddenly changed its narrative from hawkish to dovish, saying it could be more patient with interest rates. This shift helped calm the markets, which were on a selling spree in the fourth quarter. Year-to-date, the S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite Index (QQQ) have risen 14.9%, 13.1%, and 19.1%, respectively, due to the Fed’s dovish shift as well as optimism surrounding US-China trade talks.
However, the same dovish approach from the Fed has also unnerved the markets. In its March policy meeting, the Fed came out with the more-dovish-than-expected message that it didn’t expect to hike interest rates (TLT) (BND) at all in 2019. As we highlighted in Fed’s Dovish Stance Surprised Jeffrey Gundlach, Gundlach was surprised with this unexpected U-turn. He said, “What the heck is that ‘1 hike in 2020’ thing about? It seems almost desperate. Fed has gone from ‘we got this’ to ‘we’ll get back to you.’ Not reassuring.”