[ad_1]
The latest jobs report may not be a game-changer for the Federal Reserve’s easy-money policies.
Wells Fargo Securities’ Michael Schumacher said it’s premature to assume that the good July numbers will push the Fed to come any closer to cutting its monthly bond purchases.
“This report was pretty solid. Not a blockbuster,” the company’s head of macro strategy told CNBC’s “Trading Nation” on Friday. “If there’s another strong one after, it’s conceivable that the Fed will start talking about a pretty serious cut. Let’s say October.”
In Schumacher’s scenario, the Fed could start implementing tapering as early as this November. This move would likely put upward pressure on the benchmark 10-year Treasury yield.
But there is a wild card to Schumacher’s forecast: the cases of the delta variant of Covid-19. The rise could put negative pressure on yields.
“It is an open question how severe the delta turns out to be and also how aggressively governments are reacting to it,” he said.
Schumacher doubts the government will implement dramatic blockages, but he warns that further constraints on travel would hurt economic activity.
However, his overall concern affecting the bond market is more than expected inflation. Schumacher fears this will trigger a significant increase in yields.
“The point is, no one has really faced a pandemic. We haven’t had one for a hundred years,” he said. “So for anybody to say with a lot of confidence that inflation is going to go up and down pretty dramatically and come back to ‘normal in four or six months’ or whatever seems a little silly to us.”
On Friday, the 10-year rate closed at 1.30%. It rose 5% last week and is up 42% so far this year. Ultimately, Schumacher estimates he will rise and end the year between 1.60% and 1.90%, below the forecast he delivered on “Trading Nation” in June.
“When it comes to the bond market, I would say you want to stay out of trouble,” Schumacher said. “The way to really avoid the hardships there is to stay at a fairly short maturity. So maybe three years and up, something like that. Nobody’s going to make a lot of money doing that, but at least they will be relatively safe. “
Warning
[ad_2]
Source link