BREAKINGVIEWS-Dour US employment data raises stakes for the Fed

By Gabriel Rubin

WASHINGTON, March 6 (Reuters Breakingviews) - A week usually isn’t a long time in monetary policy, but most weeks aren’t like this one. Amid a widening conflict in the Middle East, the price of oil is rapidly rising, with Brent crude reaching roughly $90 per barrel, the highest in two years. Worse, the U.S. labor market is sicklier than it had appeared, with government figures released Friday showing the economy lost 92,000 jobs in February. As a new chair prepares to take over the Federal Reserve, policymakers face an increasingly gloomy set of choices, one that troublingly resembles past crises.

Pending inevitable revisions of employment data, the United States has now on net shed jobs since President Trump announced his global tariff regime in April 2025. Crucially, this is before any of the effects of the attacks on Iran have been felt. Amid retaliatory strikes on neighbors, Qatar and other Gulf producers warn of an export shutdown that could push oil to $150 per barrel if it persists for more than a few weeks.

Fed officials spent the week telegraphing plans to stand pat on interest rates in the near-term. Recent experience from the pandemic and war in Ukraine shows what happens when supply chains snarl and energy costs jump. Even before the Iran conflict, inflation was running above-target, but officials were inclined to see this as a temporary, one-off effect of trade levies. Futures markets had penciled in 50 basis points’ worth of rate cuts over the course of 2026 to account for a gradually slowing jobs market that nonetheless previously appeared to be fundamentally healthy.

The new labor data, paired with revisions to prior reports, instead paints a more worrying picture. Weakening job growth and commodity-boosted inflation argue for opposing monetary policy responses. Kevin Warsh, Trump’s nominee to replace Fed Chair Jerome Powell, may face a newly difficult decision between them.

He has been in a similar situation before. In 2008, oil prices reached their all-time high of $147 per barrel. Then a governor on the Fed board, he remained hawkish, calling for elevated interest rates even as the economy deteriorated. Ultimately, then as now, the Fed cannot control the crude market. By the end of 2008, oil prices fell to about $40 thanks to a demand-sapping recession. Hopefully, they will subside now because further conflict is averted, not because of global economic calamity. But hope is not a strategy. It may be up to Warsh to provide something that is.

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CONTEXT NEWS

The U.S. economy lost 92,000 jobs in February, according to the Bureau of Labor Statistics, while the unemployment rate rose to 4.4%.

Federal Reserve officials cautioned that war in the Middle East poses significant upward inflationary risk, putting the central bank’s monetary policymakers in a wait-and-see stance over their future rate path.