Investors Turn from Jackson Hole to Jobs and Inflation

  • No real surprises from Jackson Hole have markets in an upbeat mood to start the week and that has Treasury prices higher and equity futures as well. This week will provide some of the data points that the Fed loves, namely jobs and inflation, but for now the market is pricing little chance of a September rate hike (see table below). Presently, the 10yr Treasury is yielding 4.20%, up 8/32nds in price while the 2yr is yielding 5.07%, up 1/32nd in price.


  • After a week spent waiting and then listening to Fed Speak regarding policy, and more esoteric monetary topics such as r-star, this week will offer fundamental data which will provide the Fed hard data for future policy decisions. Powell’s speech didn’t offer anything new, and the market greeted that familiarity with a mostly upbeat reaction.


  • Higher-for-longer, data dependency regarding possible future hikes, and 2% is and will be the target where the main themes of his speech. Nothing new there. While there had been some thought that he may begin to lay out the groundwork for a higher inflation target, we felt that was a bridge too far as long as the current hiking cycle remains unfinished. That discussion will be had, for sure, but only after this cycle is wrapped up.


  • As we mentioned, this week will begin to provide the Fed with some of that data that they are dependent on. While the Friday jobs report will be the highlight, tomorrow’s JOLTS report has also become a Fed favorite in divining labor market supply and demand.  The June report printed the lowest job openings number since April 2021 at 9.582 million. Openings peaked at 12 million in March 2022 and are expected to dip to 9.5 million for July.  While the number of officially unemployed hovers around 5 million it would seem plenty of jobs are out there. The Fed will want to see this number continue to drift lower, so it will probably prompt a “more work to be done” type of response.


  • Speaking of jobs, the Friday employment report for August is expected to show another dip in job gains but a solid report is expected. 170 thousand new jobs are forecast vs. 187 thousand in July and if it comes as expected that would be the third straight month of sub-200 thousand gains. Unemployment is expected to be unchanged at 3.5% and wage gains moderating slightly from July’s solid gains. With the odds of a rate hike in September down to 20.3%, and the Fed not pushing back on those odds, it would have to take a considerable upside surprise and the trend of late just doesn’t point to that happening, but we shall wait and see.


  • Before the jobs report we get PCE inflation numbers for July on Thursday. Expectations are for similar readings to what we say in June. 0.2% MoM gains in both the overall and core are expected which would match the gains in June. The overall YoY rate is expected to tick higher from 3.0% to 3.3% as a -0.1% print from July 2022 rolls off the calculation. The next few months see a pair of 0.3% prints roll off followed by a 0.4% print so dipping into a 2-handle YoY rate is possible in the fourth quarter. The core YoY rate is expected to tick up from 4.1% to 4.2% as a 0.1% print from last year rolls off. The next two months see a 0.6% and 0.5% roll off so the YoY rate seems likely to dip into 3-handle territory in the fourth quarter. This all points to “more work to be done” and “higher-for-longer” type comments from Fed officials. Sorry for that.

Fed Funds Futures Don’t See a September Rate Hike

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.90 5.60 5.53 5.52 5.56 6.02
0.50 5.88 5.57 5.47 5.41 5.42 5.91
1.00 5.87 5.54 5.44 5.37 5.33 5.78
2.00 5.53 5.39 5.29 5.21 NA
3.00 5.24 5.15 NA
4.00 5.10 NA
5.00 5.06 NA
10.00 NA

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Published: 08/28/23 Author: Thomas R. Fitzgerald