{"id":38331,"date":"2023-07-20T17:07:51","date_gmt":"2023-07-20T21:07:51","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/bond-market-starts-to-fret-about-return-of-inflation-on-strength-of-u-s-labor-market\/"},"modified":"2023-07-20T17:07:53","modified_gmt":"2023-07-20T21:07:53","slug":"bond-market-starts-to-fret-about-return-of-inflation-on-strength-of-u-s-labor-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=38331","title":{"rendered":"Bond market starts to fret about return of inflation on strength of U.S. labor market"},"content":{"rendered":"
\n

Bond investors are worrying about the possibility that inflation could rebound again, given a U.S. labor market that\u2019s showing no signs of breaking. <\/p>\n

Thursday\u2019s data reaffirmed this view, with first-time jobless benefit claims dropping to a two-month low of 228,000 last week. One- through 30-year Treasury yields rose after the report and traders nudged up the chances of a post-July interest rate hike by the Federal Reserve before year-end. The Treasury yield curve, often seen as a reliable harbinger of approaching U.S. recessions, remained deeply inverted.<\/p>\n

Ongoing strength in the labor market is translating into expectations that the Fed might have to keep raising interest rates, which in turn could boost the likelihood of a U.S. recession, analysts said. <\/p>\n

\n

Lawrence Gillum, the Charlotte, N.C.-based chief fixed income strategist at LPL Financial, said his firm\u2019s base-case view is that the U.S. is likely to be heading into a mild recession toward the end of the year. Many others in financial markets, however, have recently been hopeful that the world\u2019s largest economy can avoid a downturn and that inflation can fade without a meaningful uptick in the unemployment rate, which stood at 3.6% as of June. <\/p>\n

As of Thursday, \u201cthe bond market is looking at the strong labor market and the potential for continued inflation pressures,\u201d Gillum said via phone. \u201cThe concern is that, even though inflation is heading in the right direction, it could reverse\u201d as the result of strong wage gains and continued demand.<\/p>\n

With the Federal Reserve widely expected to raise its interest-rate target again next Wednesday by a quarter of a percentage point to 5.25%-5.5%, Thursday\u2019s data raises the possibility that policy makers could be a \u201clittle more hawkish\u201d in their post-meeting statement, Gillum said. <\/p>\n

The Fed\u2019s annual symposium in Jackson Hole, Wyo., in August also offers Fed Chairman Jerome Powell the chance to \u201creiterate a higher-for-longer narrative on rates\u201d until inflation is on a consistent, sustainable path to 2%, he said.<\/p>\n

Wall Street investors have been grappling with how the last mile of inflation could play out. The headline inflation rate, based on the latest update to the consumer-price index, decelerated to 3% in June on an annual basis from 4% in the prior month. That\u2019s down from a 9.1% peak last summer, but it\u2019s taken five full percentage points of rate hikes to get to this point. <\/p>\n

Thursday\u2019s jump in yields occurred as fed funds traders priced in a 28.6% chance that the Fed could lift its main interest-rate target to 5.5%-5.75% by November, after factoring in a July rate hike. Meanwhile, the spread between 2-
\n TMUBMUSD02Y,
\n 4.866%<\/bg-quote>
\n and 10-year yields
\n TMUBMUSD10Y,
\n 3.853%<\/bg-quote>
\n ended the New York session at minus 98.4 basis points. U.S. stocks
\n DJIA,
\n +0.47%<\/bg-quote><\/p>\n

SPX,
\n -0.68%<\/bg-quote><\/p>\n

COMP,
\n -2.05%<\/bg-quote>
\n closed mostly lower.<\/p>\n

\u201cJobless claims provide a very timely snapshot of the labor market and what we\u2019ve been waiting for is an adjustment up in claims and for layoffs to start rising,\u201d said Rubeela Farooqi, the Jersey City, New Jersey-based chief U.S. economist for High Frequency Economics. \u201cBut businesses are not responding and that has big implications for the Fed.\u201d<\/p>\n

Via phone, she said, that \u201cthe Fed is looking for the labor market to soften and doesn\u2019t have much confidence on where inflation is going. The risk is that they [policy makers] may keep hiking rates until we see some very substantial softening in labor markets \u2014 raising the risk of a recession.\u201d <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Bond investors are worrying about the possibility that inflation could rebound again, given a U.S. labor market that\u2019s showing no signs of breaking. Thursday\u2019s data reaffirmed this view, with first-time jobless benefit claims dropping to a two-month low of 228,000 last week. One- through 30-year Treasury yields rose after the report and traders nudged up […]<\/p>\n","protected":false},"author":1,"featured_media":38332,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-38331","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nBond market starts to fret about return of inflation on strength of U.S. labor market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Bond investors are worrying about the possibility that inflation could rebound again, given a U.S. labor market that\u2019s showing no signs of breaking.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=38331\" \/>\n<meta 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