What matters in U.S. and global markets today
U.S. stocks found renewed optimism this week, buoyed by Chair Jerome Powell's relatively positive outlook on the inflationary implications of rising trade tariffs and the announcement of a significant slowdown in the Fed's balance sheet unwinding.
Today, I will explore the impact of the Fed's statements, particularly regarding unemployment calculations and the market's broader implications.
Today's Market Minute
The Federal Reserve has indicated it is not in a hurry to cut U.S. interest rates, which has drawn criticism from President Donald Trump.
Trump hosted a meeting with top oil executives at the White House on Wednesday, discussing plans to boost domestic energy production.
He is set to sign an executive order on Thursday aimed at shutting down the Department of Education, fulfilling a key campaign promise.
Eli Lilly has introduced its groundbreaking diabetes and weight-loss drug, Mounjaro, in India, the world's most populous country.
European Union leaders are committing to enhancing the bloc's competitiveness by strengthening military capabilities in response to U.S. tariffs.
Global economic meetings on Thursday will set the stage for the planned tariff hikes on April 2.
Wall Street stock futures maintained their gains from Wednesday, while Treasury yields dropped following news of the Fed’s deceleration in quantitative tightening and the forecast of two interest rate cuts this year. Futures now indicate a 50% likelihood of a third rate cut.
The dollar strengthened against most currencies, despite falling U.S. yields, likely due to traders positioning for the upcoming tariff hikes. This currency movement may also reflect profit-taking on the euro and eurozone stocks after previous market exuberance.
However, overall, the Fed's actions were somewhat disappointing. Growth forecasts were downgraded compared to three months ago, even as the inflation outlook increased. The adjustment to the balance sheet was less significant than what many market participants had anticipated.
A notable aspect was President Trump's remarks following the meeting. He emphasized that the Fed would be better off cutting rates as U.S. tariffs start to ease, breaking a period of relative silence regarding Fed policy.
While Treasury Secretary Scott Bessent has attempted to alleviate concerns about potential challenges to the Fed's independence, Washington analysts pointed out Trump's recent firing of two Democratic commissioners as a test of the independence of federal agencies, including the Fed.
Now, let's delve deeper into how this year's Wall Street stock downturn may influence prospective retirees' decisions about when to exit the workforce and how this could affect the unemployment rate.
Stock Market Declines May Affect Jobless Rates
There are concerns that a downturn in the stock market could lead to delayed retirements, which may complicate the already low U.S. unemployment rate.
In recent years, a significant cause of the low U.S. jobless rate has been the influx of Americans reaching retirement age and exiting the workforce. Many may have left early during the pandemic or were encouraged to retire due to increased savings from a booming stock market.
However, this year could see a historic number of retirees. According to data from a Washington-based nonprofit, a record 4.18 million U.S. workers will reach retirement age in 2025, averaging about 11,400 Americans turning 65 each day, a trend expected to persist for the next two decades as the larger 'Millennial' cohort begins to retire.
Despite this, many potential retirees lack sufficient savings. Reports often highlight the inadequacy of retirement funds and the uncertain future of Social Security. An industry has emerged focused on encouraging individuals to save more for retirement.
Data indicates that more than half of 'Baby Boomers' retiring between 2024 and 2030 have average assets of $250,000 or less, and they can expect to live for another 20 years.
Given this financial reality, the significant decline in Wall Street stock indexes this year may compel some potential retirees to remain in the workforce longer.
Michael Reid, U.S. economist at RBC Capital Markets, posits that a prolonged stock market decline could substantially impact the labor market and unemployment statistics. Delays in retirement could lead to decreased consumer spending among retirees and might elevate unemployment forecasts as some individuals choose to postpone their retirement by a few years.
While employers replacing retiring workers does not contribute to overall payroll growth, high retirement rates remove individuals from the labor force, thus lowering participation rates and affecting the jobless rate calculations.
Delays in retirement might increase the available labor force and potentially affect unemployment rates given constant payroll levels.
Numerous variables complicate the employment landscape, including restrictions on immigration, which has played a vital role in workforce expansion.
Concerns about worker shortages have surfaced, partly due to immigration restrictions, prompting many to advocate for higher labor force participation rates. However, prospective retirees are unlikely to fill roles typically held by recent migrants, such as unskilled labor or factory jobs.
Currently, high-frequency data on U.S. retirement trends is scarce, but the retirement rate has recently dropped to 62.4%, a two-year low, remaining below pre-pandemic levels.
The unemployment rate stands at 4.1%, having remained below 4.5% for over three years. However, broader measures of unemployment paint a less favorable picture. An inclusive metric that accounts for those who have stopped searching for work or are working part-time due to a lack of full-time opportunities surged to 8% in last month's jobs report, the highest level since 2021.
The extent to which retirees are included in part-time employment statistics remains unclear.
General economic anxiety is resurfacing, as indicated by business and household surveys, although not all hard data reflects this trend yet. How much of this concern leads to changes in plans, decision-making, and investments largely depends on forthcoming government policies.
Many older workers express anxiety about halting their careers due to the convergence of political upheaval and stock market instability.
Investment portfolios and savings are just one piece of a complex puzzle; stock corrections have experienced quick recoveries in the past.
Yet, a prolonged downturn from elevated market levels could have a more significant effect on the aging U.S. population than previously, creating new challenges for the Federal Reserve and other entities analyzing the employment market.
Today's events to watch include:
- Bank of England policy decision - U.S. weekly jobless claims, Q4 current account, March Philadelphia Federal Reserve business survey, February existing home sales; Canada February producer prices - Bank of Canada Governor Tiff Macklem speaks; European Central Bank policymakers Philip Lane, Klaas Knot, and Robert Holzmann speak - European Union summit in Brussels - U.S. corporate earnings reports from FedEx, Micron Technology, Nike, Accenture, Lennar, Darden Restaurants, Jabil, and FactSet - U.S. Treasury auction of 10-year inflation-protected securities.