The rise in inflation is necessary but not sufficient to force the Fed to tighten even more aggressively than it has forecast.
With the Fed already on notice about inflation because of “low, low unemployment”, massive amounts of new deficit spending will only move up their timetable. And bond rates will rise as a result.
A big upward revision in the data would be what the President would call an unwelcome ‘good news’ surprise.
Reuters has done a state-by-state analysis of wage data in the US, showing average pay rising over 3% in more than half of US states. This puts more pressure on the Federal Reserve to raise interest rates.
Powell mentioned financial stability as a concern as he was sworn in today. With markets taking a dive, it’s not clear what that will mean in terms of policy.
Non-farm payrolls were up 200,000 versus 180,000 expected and average hourly earnings were up 2.9% on the year
The Atlanta Fed updated its nowcast model today with the ISM results we reported earlier. The numbers are big.
The latest ISM Manufacturing Index came out earlier today. The numbers were strong, and the 69.1% reading was above expectations.
The state of the nation is as good as it is going to get during this business cycle — at least from an economic perspective. On that, we should be a lot more interested in what Janet Yellen has to say in her last FOMC press conference.
The position I have stressed is one that is counter to the bond bear market narrative. But, that is longer-term. Shorter-term dynamics are bond bearish.
Small business optimism is at a 10-year high on the eve of the latest US GDP report – another bullish indicator. Inflation is the key to how this impacts bonds longer-term.
Initial claims for unemployment insurance of 220,000 in the week ending January 13 underscore the strength of the US job market. With the 4-week moving average decreasing to 244,500, there is no sign on the horizon of disruption to jobs.