Despite the strength of payrolls last month, the rest of February's labour market data was more mixed - with the unemployment rate rebounding and a smaller monthly gain in average hourly earnings. The upshot is that, to the extent the Fed is still solely focused on the incoming economic data, the decision on whether to hike interest rates by 25bp or 50p later this month could come down to February's CPI inflation data, due next Tuesday. But the emerging problems at smaller banks are a timely reminder the Fed needs to keep one eye on financial risks too and, on balance, we expect it to hike by a smaller 25bp.
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