We've always been skeptical that bond yields carry deep meaning about the future. Low Treasury bond yields in recent years were said to be a signal of slower growth, or possibly a recession, ahead. And the bond world said stocks were over-valued.
To little surprise, the Federal Reserve hiked interest rates by 25 basis points following today's meeting. Of much greater note are the hawkish changes made to the text of the Fed's statement (and with no dissents), as well as changes in the forecast materials.
According to former Fed Chair Ben Bernanke, the U.S. economy will get a Wile E Coyote surprise in 2020. You know, just when everyone thinks he caught the Roadrunner, Wile notices he has run straight off a cliff, plummets seemingly forever before hitting the bottom in a cloud of dust, and then, just for spite, an anvil lands on his head.
In over thirty years of watching the economy we've seen recessions, recoveries (both slow and fast), panics, lulls, and boomlets. But we've rarely seen a job market this strong.
Arthur, I heard you're retiring from AEI after a spectacular run. Congratulations and best wishes in your future endeavors. However, in reading an "exit interview" with you, by Tim Alberta of Politico Magazine, I stumbled across what I believe to be a very important and dangerous blind spot in your thinking.
For decades, investors have feared the national debt growing to unsustainable levels and destroying the US economy. Back in 1981, the public debt of the federal government was $1 trillion; today it's more than $21 trillion. At some point, their theory goes, additional debt is going to be the fiscal straw that breaks the camel's back.
Asking if the Federal Reserve will lift the federal funds rate on June 13 is like asking if Las Vegas Golden Knights goalie Marc-Andre Fleury, who has stopped 94.7% of the shots against him in the 2018 Stanley Cup playoffs, will stop the next one. It's a virtual lock.
The US labor market has rarely been stronger. Recent figures from the Labor Department show US businesses had a total of 6.550 million job openings in March versus 6.585 million people who were unemployed. That's a gap of only 35,000 workers.
The bull market in U.S. stocks, which started on March 9, 2009, gets little respect. Those who have been bullish, and right, are mocked as "perma-bulls," while "perma-bears," who have been repeatedly wrong, are quoted endlessly.
The Federal Reserve held interest rates unchanged following today's meeting, but also left a few clues that they see economic activity and inflation heating up more than previously projected. A rate hike in June looks all but set in stone, and today's statement is consistent with two more rate hikes in the second half of the year, for a total of four hikes in 2018.