It was a busy week with the jobs report and the meeting of the Federal Reserve Open Market Committee meeting within days of each other. The Fed met first and they surprised nobody by leaving short-term rates where they were, though they announced that they would be selling off less of their holdings monthly. Recent strong economic news and stronger-than-expected inflation reports left no doubt that we are extending the “higher rates for longer” scenario. Several weeks ago, the markets were predicting the first cut in rates at the Fed meeting in June. Now the markets seem to be projecting September as the date with others predicting that the Fed may hold off until 2025.

Remember our thoughts about projections. They are often wrong. There is a lot of data to be released between now and those dates. Speaking of data, the April employment report was also released last week. Certainly, the torrid pace of job creation has been a significant contributor to the economic scenario the Fed is watching. What did April tell us? The market created 175,000 jobs and the headline unemployment rate rose to 3.9%. Thus, the jobs machine slowed a bit last month. In addition, the previous two months of gains were revised downward by 22,000 — making last month’s numbers even more moderate.

On the inflation front, wage growth came in 0.2% higher than last month and up 3.9% year-over-year. Overall, these numbers would make the “higher for longer” scenario a bit less likely if they are the start of a trend. Of course, there is another factor. If the war in Gaza explodes into a regional war which brings other countries into the conflict, there is no telling which way the Fed may have to act to counter such a crisis. Again, this is why predictions are so difficult. For now, we can say that the higher for longer scenario is the predominant Fed belief right now. But for how long, we can’t say.