The Bond Market is pricing in the Fed’s soft landing! – Halyard’s Weekly Wrap – 9/1/23
Despite the muted volatility of the last unofficial week of summer, economic data released this week will likely keep the Fed on the sidelines later this month. The data was heavily focused on the labor market and the releases show a slowing in hiring. The Job openings measure (JOLTS) has plunged in the last wo months, falling from 9.6 million available and unfilled jobs to 8.8 million and well below the 12 million unfilled jobs touched last spring. Simultaneous with the JOLTS release, the conference board consumer confidence index fell from 114.0 to 106.1 as the uptick in confidence witnessed last month vanished.
The monthly employment report for August was mixed. The jobs market expanded by 187,000, besting the 170,000-consensus expectation, but the revision of the last two months subtracted 110,000 jobs, a disappointing update. The headline from the report is likely to be that the unemployment rate ticked up to 3.8% from 3.5%, but within that measure is some good news in that the number of people in the workforce has expanded. That should absorb some of the unfilled jobs and do so at a time while that measure is falling. Exactly what the Federal Reserve is looking for.
The Cleveland Fed President, Loretta Mester said following the release of the jobs data that the Fed “has more work to do” in bringing down inflation, but we expect that she’s only espousing the Fed’s consensus opinion. She did not comment on the upcoming Fed meeting. As an aside, Mester is not currently a policy voter.
The expectation that the data will keep the Fed on the sidelines was reflected in the yield curve which steepened 22 basis points for the week, with the entire move coming as the two-year note fell 22 basis points. The thirty-year bond was unchanged.
Next week is an abbreviated one for the U.S. as we’ll be celebrating Labor Day on Monday. Coming back into the office on Tuesday we’ll be greeted by a host of secondary data, none of which is expected move the market or sway the Fed.
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