Fed Chair Powell: Labor Market Remains “Extraordinarily Strong”; CVS to Buy Oak Street Health; Yields Rise

On Tuesday, Federal Reserve Board Chairman Jerome Powell said that the US labor market remains “extraordinarily strong” and Friday’s monster jobs report underscored that the central bank has more work to do to bring down inflation.[0] He suggested that if the labor market remains strong and inflation keeps rising, the Federal Reserve may have to adjust interest rates higher than initially expected.[1] At the Economic Club of Washington, Powell was engaging in a question and answer dialogue with David Rubenstein.[0]

CVS announced fourth-quarter earnings of $1.99 per share on $83.8 billion in total sales.[2] In comparison to the same period last year, both figures were higher and surpassed expectations.[2] The real news for CVS, though, was that it agreed to buy Oak Street Health (OSH) – an operator of primary care centers across the U.S. – for $10.6 billion, including debt.[2] Uber’s stock rose 5.5% following the release of their fourth-quarter report which showed revenue increasing by 49% compared to the same period the previous year, totaling $8.6 billion. Adjusted earnings were $665 million, a notable jump from the $86 million reported in the year-ago period.[2]

The 10-year Treasury yield rose by 4 basis points, and was trading at 3.719% afterwards.[3] The 2-year Treasury’s yield decreased slightly, amounting to a drop of less than 1 basis point, settling at 4.5[3] The 10-year Treasury yield rose above its 50-day moving average yesterday due to a decrease in Treasuries.[4] The rate has been fluctuating within a range of 3.4% to 3.8% in the long run[4]

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, expressed to Bloomberg News that the positive employment figures show the Fed’s work is not completed.[5] He asserted that his assessment that rates should rise to approximately 5.4 percent is steadfast.[5] Fed members, in their December dot-plot, forecasted a median expectation of a peak funds rate of 5.1% at the end of this year.[6]

Last week, Powell commented that it is fortunate that the disinflation which has been observed so far has not caused a decline in the labor market.[7] I would suggest that the disinflationary process currently in progress is just beginning.[8]

0. “Fed Chair Powell: Inflation fight will take ‘a significant period of time’” CNN, 7 Feb. 2023, https://www.cnn.com/2023/02/07/economy/jerome-powell-economic-club-speech/index.html

1. “Fed’s Jerome Powell Braces for Longer Inflation Fight Amid Hiring Surge” The Wall Street Journal, 7 Feb. 2023, https://www.wsj.com/articles/feds-jerome-powell-to-address-economic-outlook-with-hiring-surge-in-spotlight-11675781503

2. “Stock Market Today: Stocks Fall After Fed Speeches” Kiplinger’s Personal Finance, 8 Feb. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-020823-stocks-fall-after-fed-speeches

3. “10-year yield rises as investors await economic data, Fed speaker remarks” CNBC, 10 Feb. 2023, https://www.cnbc.com/2023/02/10/us-treasury-yields-investors-await-data-fed-speaker-remarks.html

4. “Dovish or Hawkish on Rates? Market Awaits Powell Fly-By After Friday’s Surprise Jobs Data” The Ticker Tape, 7 Feb. 2023, https://tickertape.tdameritrade.com/market-news/dovish-or-hawkish-on-rates-market-awaits-powell-fly-by-after-friday-s-surprise-jobs-data-19387

5. “Fed’s Powell speaks on economy, job market” The Washington Post, 7 Feb. 2023, https://www.washingtonpost.com/business/2023/02/07/powell-economy-jobs/

6. “Stocks Rally as Fed Chair Powell Is Less Hawkish Than Feared” Barchart, 7 Feb. 2023, https://www.barchart.com/story/news/13990549/stocks-rally-as-fed-chair-powell-is-less-hawkish-than-feared

7. “Americans will see ‘significant decline in inflation’ in 2023: Powell” Business Insider, 7 Feb. 2023, https://www.businessinsider.com/when-will-inflation-go-down-significant-decline-this-year-powell-2023-2

8. “Dow Jones Futures Fall After Market Rallies On Powell, AI Arms Race; Fortinet, Enphase Jump On Earnings | Investor’s …” Investor’s Business Daily, 8 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rallies-on-powell-microsoft-ai-arms-race-fortinet-enphase-jump-on-earnings/