US Employment Report (Feb.)

The above-consensus 311,000 increase in payroll employment last month confirms that the super-sized 504,000 gain in January wasn’t just a seasonal distortion, but the rest of February’s report will provide some comfort to the Fed – with the unemployment rate rebounding, average weekly hours worked dropping back and average hourly earnings increasing by a muted 0.2% m/m. The upshot is that it looks like the 25/50bp debate surrounding the rate hike decision later this month will come down to February’s CPI report, due next Tuesday. We still think the Fed will stick with a 25bp increase but acknowledge that, after Chair Jerome Powell’s hawkish testimony this week, it’s a very close call.