By Lou Barnes | Inman
Markets fear Fed tightening in the face of flat wage growth, falling inflation
Brace thyself. Mortgage rates are above 4 percent for the first time since December, taken up by an overnight rout in the 10-year T-note (and a lot of other markets). Last night 10s were hanging on to the two-year downtrend at 2.11 percent, and are now 2.25 percent.
As always, take it one piece at a time. First of all, the dive in 10s from 2.35 percent at Christmas to 1.65 percent in early February — one-third in six weeks! — was a tad peculiar. Most of us thought the cause was exceedingly low yields overseas, and every major central bank trying to devalue its currency versus the dollar. I still believe that, and believe foreign conditions are a strong counterweight to Fed tightening. The Fed thinks so, too, which may force it to tighten harder, right or wrong.
Charts aside, the overnight driver was an upside surprise in February payrolls, another 295,000 jobs. Despite claims of a “strong” report and violent market reaction, the thing is shot full of holes. One-third of the jobs were hospitality and retail, protected from foreign competition, but dead-end, unstable and poor-paying. Average hourly earnings rose $0.03, up 0.01 percent for the month and decelerated to 2 percent year over year. More people at work even at lousy wages means more national income, but at this rate of change, increasing inflation is impossible.
