On Friday we had the latest US Jobless Claims report and it surprised to the downside. Significantly. Only 38,000 new jobs were added in May and that was way below expectations. The April number was adjusted down as well.
Fed Funds futures immediately sold off, with a June rate hike suddenly off the table. Pretty much completely. On the back of one number. Ok, it was a bad number, the lowest since 2010. But are we saying that the fate of US interest rates relies solely on one statistic? Well, yes that is what we are saying, because that’s what the Fed has told us they are watching. But isn’t that exactly the problem with centrally controlled interest rates? The information behind the decision on whether to hike or not is very limited. Not like a free market price, that at any time contains the aggregate sum total of the information of all market participants. Should the Fed hike? No-one knows the answer to that question, neither Janet Yellen nor anyone else. The question we are trying to answer is ‘Will the Fed hike?’. That is not the same thing!