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Markets all week have been completely at sea, careening down in the mornings only to recover, at least somewhat, by the end of the day.
But on Friday the scope of uncertainty rose.
That’s because as the Iranian conflict expands across the Middle East, bad economic data rocked the US home front in a different way. Along with war and surging oil, the Trump administration and the Fed now have to deal with bad jobs numbers.
To the robot markets brain, looking past a war (if it’s actually short-term) makes sense, even if that mode of analysis conflicts sharply with our actual human brains, which are processing the war through a more holistic lens. It’s worth distinguishing the two.
But even by the detached, abstract standards of measuring aggregated numbers, the jobs data makes the economic picture, under pressure from the war, look more concerning.
It’s a lot harder to wave away the negative impacts of the conflict as “transitory” when the US economy is under pressure on multiple fronts. Sure, oil price spikes may be momentary — although that’s not a certainty. But the softening of the US labor market can’t be so easily explained away, especially if the trend gets confirmed in the next batch of data.
All of which sets up an interesting initiation for the incoming Fed chair, Kevin Warsh.
The volatile stock moves all week have shown that no one knows what to think of the war, how long it will last, or how it might end up.
But the markets, and the ecosystem of analyst commentary and Fedspeak Kremlinologists, were built to interpret jobs day. And the reaction was not good.
Read more: How to protect your money as Mideast turmoil fuels market volatility
Job losses pulled the unemployment rate up from 4.3% to 4.4%. And while the go-to move is to lower interest rates to help a struggling labor market, energy disruptions and higher prices stemming from the Iran war mean the Fed can’t act without risking even higher unemployment or steepening inflation.
“Today’s numbers may have put the Fed between a rock and a hard place,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
Even before the onset of US-Israeli attacks, the American economy was in a sensitive place.
Inflation remained stubbornly above the Fed’s 2% target for more than four years. President Trump’s second-term tariffs didn’t exactly help. And now the threat of Iranian reprisal attacks has effectively blocked passage through the Strait of Hormuz, creating a literal and figurative economic chokepoint and a supply shock.