Labor Data, Inflation Fears, and Bond Market Optimism
Labor Data, Inflation Fears, and Bond Market Optimism
This is a critical week for the labor market, marking the last batch of data before the Federal Reserve’s pivotal December 18th meeting. Here’s what you need to know about the economic backdrop, inflation pressures, and fresh optimism last week in the bond market creating a slight drop in interest rates.
Inflation: Is Fed’s Worst Nightmare Resurfacing?
Inflation remains the Fed’s greatest challenge, with today’s data confirming a troubling trend: Core CPI, PCE, and PPI metrics are rising simultaneously for the first time since February 2022.
Core CPI inflation has now remained above 3.0% for 42 consecutive months, the longest streak since the early 1990s.
This compounding inflation poses serious risks, raising fears of a 1970s-style inflationary rebound, where brief relief was followed by another surge toward 15% by 1980.
The Fed faces mounting pressure to thread the needle between combating inflation and avoiding excessive tightening that could harm the labor market. This mix of rising inflation, weakening labor market data, and surging bond yields complicates the Fed’s path forward. With inflation creeping higher and housing sentiment at all-time lows, the December meeting could reset the direction for the economic outlook
Optimism in the Bond Market: Scott Bessent Named Treasury Secretary
President-elect Donald Trump's nomination of Scott Bessent as Treasury Secretary has been met with optimism in financial markets, alleviating concerns over potential aggressive tariffs and financial policies that could destabilize the economy and push interest rates above 8%.
Treasury yields fell, stabilizing the 10-year yield at a critical technical level, which has already led to slight improvements in mortgage rates.
Michael Purves, CEO of Tallbacken Capital Advisors, noted, "This is the big thing everyone’s been waiting for. There was anxiety Trump would choose someone unpalatable to Wall Street, but this pick has lifted the gloom."
A bright spot: Post election spark- 7% more homes in contract than last year
What’s Next?
The economic narrative is being shaped by a complex mix of labor market uncertainty, rising inflation, and recent bond market optimism (still far below the October highs). With inflation data back on the rise and crucial employment metrics due this week, all eyes are on how the Fed will respond at its next meeting.
The stakes are still high, as the path forward will define whether the U.S. economy can avoid stagflation—or if we’re heading into more turbulent times. Stay tuned for updates on this ever-evolving economic story.
Key Events This Week:
November ISM Manufacturing PMI data - Monday
October JOLTS Job Openings data - Tuesday
November ADP Nonfarm Employment data - Wednesday
Fed Chair Powell Speaks - Wednesday
Initial Jobless Claims data - Thursday