The Case For Higher Rates Is Looking Weak...Again
James Picerno | Jul 22, 2014 07:24AM ET
Some analysts are again projecting that the age of higher interest rates has finally arrived. The Fed is tapering and the US economy is expanding moderately, despite a first-quarter setback. David Kotok last week noted earlier this month, the year-over-year rise in private payrolls is still rising at around 2%, which is roughly what’s it’s been all along. Yes, it’s a touch higher lately, but this is hardly a clear sign that the economy is accelerating.
Meanwhile, other indicators—annual growth rate for housing starts has decelerated recently, raising questions about the outlook for this key sector.
Overall, US economic growth continues to trend positive, as confirmed in yesterday’s reports:
Italian Economy Minister Pier Carlo Padoan said on Tuesday the recent German economic data show that Europe’s economy is much weaker than it was expected to be six months ago, and further economic sanctions against Russia would be a “problem” for all sides.
“The macroeconomic picture is disappointing, and recent data on Germany sounds the bell alarm because it indicates that the weakness is more persistent in time and widespread in space than what we expected six months ago,” Padoan said in testimony to the European Parliament’s economic affairs committee.
Perhaps then it’s no surprise that the appetite is increasing for safety in the form of 10-year Treasuries. The yield on the benchmark Note slipped under 2.50% yesterday for the first time since May. Meanwhile, we’re a long way from the 3.0% yield that marked last year’s close. Higher interest rates? Yes… one day. But for the moment, the trend seems to be moving in the opposite direction once more.
That will change if the data, here and abroad, tells us otherwise. But for the moment, Mr. Market is inclined to fall into an old habit: bidding up prices on government bonds.
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