NFP Quick Analysis: Americans get a pay raise, but markets' boss is the Fed, dollar to rise

Everybody gets a raise – whether it is the Great Resignation or not-so-great factors, Americans' salaries are rising on a broad base. The headline Average Hourly Earnings MoM has missed with only 0.3% vs. 0.4%. However, it came on top of an upward revision to last month's figure – 0.5% reported now vs. 0.4% in the original publication. 

Job growth also looks healthy. Even when subtracting the downward revisions worth 39K from the headline job growth of 428,000, the outcome is 391,000 – exactly what the economic calendar showed prior to the publication. In absolute terms, an increase of roughly 400,000 positions every months represents a healthy expansion. It was around 200,000 before the pandemic. 

The Federal Reserve cannot control the price at the pump, as that is impacted by Russia's war in Ukraine, Saudi Arabia's calculations, and the balance sheets of shale producers. Neither does it have control over China's dogmatic zero covid policy, which is causing supply-chain disruptions. But it can substantially impact domestic demand. 

With so many people being employed and their income rising, price pressures are rising. The Fed can encourage saving and discourage shopping sprees by raising interest rates and cooling down inflation. Fed Chair Jerome Powell may have vowed to increase borrowing costs by 50 bps in June, but such figures may force his hand to move more aggressively. He has already shown his willingness to pivot – and there is no reason it cannot happen again.

Bond markets are impatient and need to take instant decisions, pricing more aggressive policy. The dollar follows and may have more room to run. The broad trend is already risk-off, boosting the greenback, and this jobs report only extends the trend.