Treasury bonds were fairly quiet yesterday and have absolutely been tame to date immediately too.
Stocks sold recently when Gary Cohn, President Trump’s top economic advisor, resigned, reportedly because Cohn and Trump clashed in the concept of a trade war.
Despite the continued political circus, Treasury yields traded inside a narrow range well before last Friday’s jobs report. In truth, volatility ebbed significantly, as long-term Treasury yields ranged from three.11% to three.15%.
February employment became a mixed bag. Non-farm jobs were up by 313,000, trouncing an estimate of 205,000. The labor participation rate increased to 63% from 62.7%.
Now for any not so good: The unemployment rate stayed at 4.1% about the expectation it may well drop to 4%.
And, worse, earnings were only up 0.1% for the expectation on the 0.2% increase. The annualized increase in wages fell to two.6% from 2.8%. That’s a disappointment, especially given that the Federal Reserve was expecting wages to push inflation up.
Speaking of inflation, Tuesday morning’s details reveals the February Consumer Price Index (CPI) went more or less as you expected. CPI ?was up 0.2% month over month, of course, and a pair of.2%year over year. Core CPI (less food as well as energy) seemed to be up 0.2%, obviously, and 1.8% year over year.
According for the Bls, used and new vehicle prices fell 0.5% and 0.3%, respectively, while apparel costs rose 0.3%. Housing also rose 0.3% about the month, while owners’ equivalent rent gained 0.2%.
So far, consumer prices haven’t increased towards the magic 2% level the Fed targeted ten years ago, although wholesale prices hit 2% last May. The February Producer Price Index (PPI) is out with friends Wednesday. The consensus forecast is good for something in the neighborhood of ?Tuesday’s CPI number, but core PPI is tracking at 2.5% around the year.
Producer-price increases in the end achieve passed along to consumers, so you would feel that the Fed and investors would be concerned with wholesale inflation, but not so. To this point, surprises during the PPI are met by using a collective yawn.
Even though employment continues to be strong and unemployment low, wage growth has become stubbornly low.
That seems to be the missing piece to your Fed’s puzzle.
Even though inflation and wage growth have already been muted, I still expect the Fed will hike rates in the near future. Why? Because policy makers for the Fed still expect wages to relocate higher, with consumer inflation which you can follow.
We’ll simply have to wait and pay attention to.
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Editor, Treasury Profits Accelerator