Rory Robertson
Rory Robertson
assumption bond economy fairly fed hike labor march might particular perception perhaps quite rates yields
There's a perception that the economy is actually doing quite well, in particular the labor market. It's a fairly straightforward assumption the Fed would want to hike rates in March and perhaps in May. You might see bond yields go higher.
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The Fed ultimately will be forced to cut rates further because we have had this ongoing issue of sub-par growth, disappointment on the jobs front and core inflation edging lower. People are talking about a terrific snap-back in the economy after the war, but I'm skeptical we're likely to see it.
skeptical time
I am skeptical that this time will be different.
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Obviously, a big rise in the core CPI would get the ball rolling toward another hike, but it's far from clear that will be the outcome.
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The Fed is trying to do what it can, but the history of the past 200 years is that big booms tend to end badly -- big equity market booms in particular. The Fed so far has done a magnificent job of holding the show together, but we don't know what effects of the bubble are still in the pipeline.
downside market risk yield
Just as the market overshot on the downside in yield in May/June, the risk is that it now overshoots on the upside.
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All the good growth is in the forecasts, in the idea that financial conditions have eased. But we've seen that doesn't always turn into actual good growth.
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The sharp rise in mortgage rates that is now under way threatens to limit the refinancing boom, limiting the cash that will be dropped into U.S. consumers' hands during the critical holiday-shopping season.
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The lesson from Australia is, as long as interest rates stay relatively low, the market will cool, not crash.
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Financial conditions clearly are quite a bit tighter than they were six weeks ago. I'd be dumbfounded if the Fed was not anxious about this dramatic rebound in yields dampening the rebound in the pipeline.
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If gross domestic product prints 2.75 or 3 percent, it's broadly where the market is. People put very little weight on the fact that any pressure on inflation in the U.S. is quite modest and that's breeding low and steady bond yields.
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Unemployment at 6 percent means the Fed has just lost six full years of progress towards lower unemployment in just six quarters. With its preferred measure of core inflation at the lowest level since the 1960s, the Fed probably requires a run of monthly payroll gains of 150,000 to 200,000 before it will feel any real need to tighten.
factors maintained means next number several
This number doesn't tell us much at all -- the seasonal factors are all over the shop. It only means something if it's maintained over the next several weeks.
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There is a very gradual improvement, but the rate of improvement is painfully slow.