Anxiety about interest rates, sparked by the dollar's fall and reinforced by a strong employment report, continues to cloud the outlook for banking stocks.

Despite gains in Friday's overall market surge, the banks significantly underperformed most other stocks last week.

The jobs report puts the question of an increase in short-term rates this month by the Federal Reserve "back on the table," said economist Robert G. Dederick.

"If the dollar is still taking gas by the end of the month when the Fed meets, this report could give them the justification for a tightening," he said.

The Labor Department said Friday that nation's jobless rate fell to 5.4% in February from 5.7% in January as nonfarm payrolls increased by 318,000. That was 100,000 more than anticipated on Wall Street.

"We still seem to be moving fast enough that the threat of inflation is intensifying, even if its presence is unseen," said Mr. Dederick, economic consultant to Chicago's Northern Trust Corp.

Only two weeks ago, there was a nearly universal feeling in the banking and investment communities that the economy was beginning to slow down. The Fed, it was concluded, would not increase rates again until May, if at all.

That sentiment, which ignited the rally in banks, was shattered by the dollar's dramatic fall in value in international exchange, labeled a potentially inflationary development by Fed Chairman Alan Greenspan.

Then the latest jobs report interrupted a string of indicators that the economy's expansion might be moderating to a slower but sustainable pace.

"It was a discordant note in an otherwise pleasing symphony for investors," said Philip Braverman, chief economist at DKB Securities Corp., New York.

"But it isn't the final note, and so we should not conclude that it's a bad piece of music," emphasized Mr. Braverman. He does not think the central bank is likely to raise rates when its monetary policymaker, the Federal Open Market Committee, convenes on March 28.

"As far as wage inflation is concerned, it is just not evident from this report. Weekly earnings actually declined 1.1% for the month and there was no change in average hourly earnings," Mr. Braverman noted.

"One of the key things to look at to gauge gross domestic product is the aggregate hours index," he noted. "That plunged 0.8%, nearly offsetting the 1.1% gain in January.

"This suggests that the (first-quarter) GDP figure is not going to be that strong," he said. "And certainly a lot weaker than it was during the fourth quarter."

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