(Bloomberg) -- Stocks fluctuated as data showing a hot labor market bolstered speculation the Federal Reserve will need to keep its policy tighter for longer, with traders focused on Jerome Powell’s testimony to Congress.

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The S&P 500 swung between gains and losses after a selloff driven by expectations the Fed might accelerate the pace of tightening and raise rates to a higher peak than previously expected amid signs of a stronger economy. Fed Chair Powell repeated his warning that officials will speed up their pace of interest-rate increases if necessary to defeat high inflation, in prepared opening remarks Wednesday before the House Financial Services Committee

Vacancies at US employers retreated at the start of the year but remained historically elevated, highlighting a persistent imbalance between labor demand and supply that supports a higher level of interest rates. Private payrolls rose 242,000 last month, according to figures from ADP Research Institute in collaboration with Stanford Digital Economy Lab. The median estimate in a Bloomberg survey of economists called for a 200,000 advance.

“Private payrolls bouncing back after a disappointing January adds more uncertainty to the debate of when higher rates will lead to demonstrably slower hiring. Friday’s nonfarm payrolls report will provide investors additional clarity, but all signs point to the labor market remaining resilient ahead of the Fed’s next decision. It’s no surprise to see the market take a breather after yesterday’s selloff as Powell reminded investors its work isn’t done just yet and don’t expect them to end the fight early,” said Mike Loewengart at Morgan Stanley Global Investment Office.

The bond market is doubling down on the prospect of a US recession, with swap traders pricing in a full percentage point of Fed hikes over the next four meetings, pushing the the yield on two-year Treasury notes to its highest level since 2007. As a result, the closely-watched spread between two- and 10-year rates this week showed a discount larger than a percentage point for the first time since 1981, when then-Fed Chair Paul Volcker was engineering hikes that broke the back of double-digit inflation at the cost of a lengthy recession.

Fed Bank of Richmond President Thomas Barkin said the central bank needs to continue to raise rates, without giving an opinion on the size of the hike planned later this month. “We’ve seen some progress but at 5.5% inflation remains well above the Fed 2% target, and as a result we’ve made clear we still have work to do.”

Citigroup Inc. economists see the Fed raising its benchmark lending rate by 50 basis points at the March meeting, joining Goldman Sachs Group Inc. in lifting their forecast. They increased the estimate from 25 basis points, and also boosted their projection for peak rates to a range of 5.5% to 5.75%.

To James Demmert at Main Street Research, the market is finally coming to the realization that elevated interest rates are here to stay and the idea of a Fed pivot anytime soon is wishful thinking.

“The Fed may be much more determined to raise rates - even by 50 basis points at the March meeting given the recent bout of strong economic, inflation and employment data,” Demmert added. “At the same time, the lag effect of rising rates over the past year may be slowing the economy. The risk of a recession has now increased in recent weeks, as the lag effect from the Fed’s tightening may soon start to show up in the data, just as the Fed has doubled down on raising interest rates. This combination of a weakening economy and more rate hikes would surely push the economy into a recession.”

The three-month London interbank offered rate for US dollars rose Wednesday by the most since October after hawkish comments from Powell the day before sent front-end Treasury yields higher. The benchmark rate for lending between banks increased nearly 10 basis points to 5.12471%. Higher funding rates are in line with swap traders hoisting where they see the peak Fed policy rate during this tightening cycle. That’s now seen going to almost 5.7% by September.

US mortgage rates increased for a fourth week to the highest level since mid-November. The contract rate on a 30-year fixed mortgage rose 8 basis points to 6.79%, according to the Mortgage Bankers Association. The group’s index of mortgage applications to buy a home, however, increased. The data can be volatile around holidays, and the week followed Presidents’ Day.

It’s been a busy few months for Wall Street analysts revisiting their earnings views amid ever-changing macro data that is dimming visibility into future cash flows.

The bottoms-up consensus currently sees S&P 500 earnings per share coming in at $220 this year compared with $222 in 2022. And for all the criticism that the estimate should go down more, analysts are moving very quickly compared with recent history. From June 2022 to now, analysts have slashed their 2023 EPS estimates by 12%, on pace for the sharpest decline in full-year outlooks since 2010, data compiled by RBC Capital Markets show.

Key events this week:

• Canada rate decision, Wednesday

• EIA crude oil inventories, Wednesday

• China CPI, PPI, Thursday

• US Challenger job cuts, initial jobless claims, household change in net worth, Thursday

• Bank of Japan policy rate decision, Friday

• US nonfarm payrolls, unemployment rate, monthly budget statement, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 10:03 a.m. New York time

• The Nasdaq 100 fell 0.2%

• The Dow Jones Industrial Average fell 0.1%

• The Stoxx Europe 600 was little changed

• The MSCI World index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0543

• The British pound was little changed at $1.1822

• The Japanese yen rose 0.2% to 136.91 per dollar

Cryptocurrencies

• Bitcoin fell 0.1% to $22,024.56

• Ether rose 0.2% to $1,552.8

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.92%

• Germany’s 10-year yield declined five basis points to 2.64%

• Britain’s 10-year yield declined eight basis points to 3.74%

Commodities

• West Texas Intermediate crude fell 1.1% to $76.76 a barrel

• Gold futures rose 0.2% to $1,822.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Isabelle Lee and Vildana Hajric.

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