1. February Unemployment Report Showed Jobs Booming
2. A Quick Primer on the US National Debt – Almost $21 Trillion
3. China & Japan Are Reducing Holdings of US Treasury Debt

Overview

We’ll touch on several bases today which should make for an interesting E-Letter. We start with the fact that China and Japan are reducing their holdings of US Treasury debt. As the two foreign countries holding the largest amount of our debt by far, should we be concerned? Maybe yes, maybe no. I’ll give you my thoughts.

Before we get to that discussion, let’s quickly review last Friday’s much stronger-than-expected unemployment report which should make it a slam-dunk that the Fed will raise short-term interest rates by another 0.25% at its upcoming policy meeting next week on March 20-21.

February Unemployment Report Showed Jobs Booming

On Friday the Labor Department’s Bureau of Labor Statistics reported the US economy added 313,000 net new jobs in February, far more than the 200,000 expected. The official unemployment rate remained at a 17-year low of 4.1%. Jobs numbers for January and December were revised higher than previously reported.

Monthly change in jobs

The civilian labor force rose by 806,000 in February, and the labor force participation rate increased by 0.3 percentage point to 63.0%.

At the same time, average hourly earnings grew less than expected, ticking only 0.1% higher, or 2.6% on an annualized basis. That more modest wage growth tempered some market fear of inflation after stronger-than-expected wage growth in January helped trigger a sharp correction in stocks in early February.

With the much stronger-than-expected job growth last month, odds are above 90% that the Fed Open Market Committee (FOMC) will vote to increase the Fed Funds rate by another quarter-point at its policy meeting next week which concludes on March 21. If so, the Fed Funds rate target range will rise from 1.25%-1.50% to 1.50%-1.75%.

For some time, the thinking has been that the Fed will hike its key interest rate three times this year. However, new Fed Chairman Jerome “Jay” Powell hinted in congressional testimony last month that the FOMC may consider four rate hikes this year if the economy remains strong or if it looks like inflation is set to rise more than currently expected.

Now let’s move on to our main topic for today.