What’s really behind the interest rates rollercoaster
Which way will interest rates go next?
Interest rates soared in recent weeks with the 10-year US government note, for example, settling comfortably over 3 percent. Then, suddenly this week, it wasn’t over 3 percent anymore as buyers rushed into the bond market and the heightened demand caused rates to decline noticeably.
On Wednesday, the rate on the 10-year was around 2.85 percent.
On Friday, the monthly employment report will be released by the Labor Department and we’ll see whether that news will push interest rates over the important 3 percent level again.
But truth be told, the job report isn’t the only thing going on right now — and it’s probably not even the most important.
With chaos in the Italian government hurting global financial markets, foreign investors will probably decide to put more money into US securities in the days and weeks ahead.
When demand for US securities goes up, interest rates go down — unless something bigger, like an all-out trade war with China kicks up or signs emerge that the world economy is blasting off and that inflation is getting out of control.
Political confrontations in Washington that cause foreigners to question the stability of the Trump administration would be another overriding concern.
Given all that going on, it’s even possible — although not likely — that the Federal Reserve, which meets again in the middle of June, will decide not to raise the interest rates it controls.
A rate hike of one-quarter percent is widely expected.
Wall Street is also expecting that Labor will announce that 185,000 jobs were created in May. That would be an improvement from the disappointing 165,000 new jobs that were created in April.
The unemployment rate, which is a worthless economic indicator, is expected to remain at 3.9 percent.
The experts are also expecting hourly wages to have increased by 0.2 percent in May from April levels. The increase in wages was 0.1 percent from March to April.
While the average American would be thrilled by strength in employment and wages, the financial markets won’t be overjoyed if either the number of new jobs or wages comes in much stronger than expected.
That would be taken as a sign of impending higher inflation and a more aggressive Fed.
So then, what will be the dominant force in the market over the next week or so? The chaos in Europe? A full dose of Washington chaos — still to come with reports on investigations of the last election? Or the economic data?
The answer: probably all of the above and some things I haven’t even thought of.