NEW YORK, April 5: A second month of huge job losses in March will test the Federal Reserve’s patience and may make an interest rate cut more likely in coming months, but probably not before the Fed’s next policy meeting in May.

Markets had been braced for an even worse result than the loss of 108,000 jobs in March, which took the total US payroll cuts in February and March to a staggering 465,000.

But a couple of factors prevented the March report from being disastrous enough to stoke speculation of an imminent interest rate cut: the psychologically important unemployment rate held steady at 5.8 percent and a measure of hours worked increased in the month.

It’s a particularly weak number, but all of them have been particularly weak lately and the Fed hasn’t shown any inclination to move, said ABN AMRO chief economist Steve Ricchiuto.

It is only a little over two weeks since the Federal Reserve said it could not “usefully” describe the near-term outlook for the economy, given “unusually large uncertainties clouding the geopolitical situation”, short-hand for the then looming war in Iraq, and the majority of Fed officials has said it will take time to get a clearer read of the economy.

The next Fed policy meeting is May 6, but there had been speculation in markets that another poor jobs number could prompt the Fed to make an emergency rate cut before then.

A Reuters survey of top Wall Street bond dealers on Friday found nine out of 21 expect the Fed will cut borrowing costs again in coming months, unchanged from the last survey, while 12 see policy on hold.

But the odds of a sudden move before the May 6 meeting edged down to 30 per cent, from 34 per cent.

Federal funds futures, which bet on the path of interest rates, slipped on Friday, showing reduced expectations of a cut. The May contract showed a 55 per cent chance of a cut, compared with nearly 70 per cent on Thursday. The odds of an April move also fell.

What you have is a Street that doesn’t believe the Fed’s going to move on the numbers, even though I think the numbers are actually pretty horrible, Ricchiuto said.

Many of the recent figures reflect the near-paralysis in the economy before the war with Iraq began in mid-March, and it’s not clear whether that state of mind has yet lifted.

But the sheer pressure of negative news has made economists wonder what it will take to stir policymakers into action.

The latest data for manufacturing, the services sector, unemployment insurance, durable goods and even the stalwart housing sector point to the economy actually shrinking in February, and perhaps into March as well.

Weak as the (jobs) report was, it doesn’t settle the issue of how much of the recent problems with the economy are war-related or reflect fundamental weakness. It leaves that key question unanswered, said Banc One Capital Markets senior financial economist Anthony Karydakis.

The Federal Reserve has blamed much of the poor data on the anticipation of war, and still hopes activity will pick up in coming months. In its favor, oil prices have fallen since the war began and stock prices have steadied.—Reuters