Bond investors are worrying about the possibility that inflation could rebound again, given a U.S. labor market that’s showing no signs of breaking. Thursday’s data reaffirmed this view, with first-time jobless benefit claims dropping to a two-month low of 228,000 last week. One- through 30-year Treasury yields rose after the report and traders boosted the chances of a post-July interest rate hike by the Federal Reserve before year-end.
Lawrence Gillum, the Charlotte, N.C.-based chief fixed income strategist at LPL Financial, said his firm’s base-case view is that the U.S. is likely to be heading into a mild recession toward the end of the year. Many others in financial markets, however, have recently been hopeful that the world’s largest economy can avoid a downturn and that inflation can fade without a meaningful uptick in the unemployment rate, which stood at 3.6% as of June.
The Fed’s annual symposium in Jackson Hole, Wyo., in August also offers Fed Chairman Jerome Powell the chance to “reiterate a higher-for-longer narrative on rates” until inflation is on a consistent, sustainable path to 2%.