Wall Street wavers after surprisingly strong jobs report

Friday, July 8, 2022

NEW YORK (AP) — Stocks are swinging between small gains and losses as Wall Street works out what to make of surprisingly strong data on the U.S. jobs market released Friday.

The S&P 500 fell 0.4% in afternoon trading after earlier veering from a loss of 0.9% to a gain of 0.3%. On the optimistic side, employers hired many more workers last month than expected despite worries about a possible recession. However, the hotter the economy remains, the more likely the Federal Reserve is to continue raising interest rates sharply in its fight against inflation.

Treasury yields shot higher immediately after the release of the jobs data, underscoring expectations of Fed rate hikes, but then eased back. The yield on the two-year Treasury jumped as high as 3.15% from 3.03% late Thursday, but it then moderated to 3.11%.

The Nasdaq composite fell 0.5% after swinging from an early loss of 1.2% to a gain of 0.4%. The technology and other highgrowth companies that make up a big chunk of that index have been some of the most vulnerable to rising rates recently.

The Dow Jones Industrial Average fell 72 points, or 0.2%, at 31,311, regaining some ground from a 172-point decline.

The Federal Reserve has already hiked its key overnight interest rate three times this year, and the increases have become increasingly aggressive. Last month it raised rates by the sharpest degree since 1994, by three-quarters of a percentage point to a range of 1.50% to 1.75%. It was at virtually zero as recently as March.

By making it more expensive to borrow, the Fed has already slowed some parts of the economy. The housing market has cooled in particular as mortgage rates rise due to the Fed’s actions. Other parts of the economy have also shown signs of flagging, and confidence has fallen sharply among consumers as they contend with the highest inflation in four decades.

The hope on Wall Street had been that the recently mixed data on the economy could convince the Federal Reserve to take it easier on rate hikes. This week’s reprieve from spiking prices for oil and other commodities helped strengthen such hopes. But Friday’s jobs report may have undercut them.

Higher interest rates slow the economy by design, and the Fed’s intent is to do so enough to force down inflation. It’s a sharp reversal from policy during the pandemic, which was to keep rates low in order to support economic growth. The danger is that rates hikes are a notoriously blunt tool, with long lag times before their full effects are seen, and the Fed risks causing a recession if it acts too aggressively.

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