Traders are wondering if the Fed got it wrong in the face of inflation ahead of Friday’s US jobs report – News Couple
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Traders are wondering if the Fed got it wrong in the face of inflation ahead of Friday’s US jobs report


Traders are wondering if Fed policy makers have already missed their best opportunity to deal with persistently high US inflation, as financial markets turn their attention to Friday’s monthly payroll report.

With Fed officials remaining patient about rate hikes and relying on incoming economic data, traders will focus on the labor force participation rate that has been mired in a narrow range below pre-pandemic levels for more than a year because many Americans have chosen to sit on the sidelines.

I see: The US economy saw the addition of 450 thousand jobs in October despite the lack of employment

A failure to break out of that narrow range again in the October data will mean companies will likely need to lure workers back in with higher wages, a key component of inflation. For now, though, investors retain confidence in the Fed’s view that inflation is expected to be temporary, but some are also beginning to question whether central bankers have missed the boat altogether.

It’s a question we all ask,” said John Farwell, executive vice president and chief trader at bond insurer Roosevelt & Cross in New York. “We don’t really know what’s going to happen going forward, and tomorrow’s number may be really important because it will give us a signal as to whether not having more people returning to the workforce will mean that wages are going up and out for consumers.”

Monthly US non-farm payroll reports tend to be widely followed by markets, but the October report takes on added significance after the Federal Reserve decided on Wednesday to stick to its interim view on inflation and be patient about rate hikes, while scaling back bond purchases. . . For the most part, financial markets have taken the Fed update step by step, with the S&P 500 SPX,
+ 0.42%
Nasdaq composite indexes,
+ 0.81%
To reach new records on Thursday.

Fravel said by phone that Treasury yields were lower across the board as well, indicating that investors remain confident that the Fed will eventually keep inflation under control, while expectations for economic growth have waned. But he said that view of the Fed “could change quickly” after Friday’s data.

Meanwhile, the difference between 5 years TMUBMUSD05Y,
1.129%
30 YEARS RETURNS TMUBMUSD30Y,
1.969%And
In addition to the two-year TMUBMUSD02Y gap,
0.442%
and 10 years TMUBMUSD10Y,
1.539%And
It widened as of 10 a.m. ET on Thursday as traders priced less monetary tightening in the United States and other countries than previously expected, according to data from Tradeweb. The widening of the spreads could mean that the worrying signs of economic slowdown seen in recent weeks have eased a bit.

The US labor force participation rate started declining with the onset of the COVID-19 pandemic in the US, and has remained within a narrow range of 61.4 percent to 61.7 percent since June of 2020. The median forecast of analysts is for the non-farm sector salary increase of 450,000 In October, up from 194,000 in the previous month. The unemployment rate is expected to fall to 4.7% from 4.8%.

Fed rate hikes tend to affect the economy with a difference of six to nine months, which means that hikes to be delivered next year likely won’t have any actual economic impact until 2023. Meanwhile, CPI readings came in At 5% or higher on an annual basis for five consecutive months, and some traders in recent weeks have priced key CPI gains at 6% or higher for the next three months.

“The market is increasingly skeptical — as are we — that policy makers will be able to maintain these low price levels for another year, let alone two, against the backdrop of very high inflation pressures and rising inflation expectations,” Lindsey Bigza, Stifel’s chief economist, wrote. in a note.

“The Fed wants to cool inflation and keep inflation expectations in check,” she wrote, but at the same time the rate-setting Federal Open Market Committee recognizes that the economy remains somewhat fragile, or at least increasingly dependent on monetary strikes. Dish.”



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