CNBC’s Ron Insana said to brace for a small rate hike by year’s end, even though the bond market disagrees with his misgiving about such a move.
“While I have been of the mind that the Fed won't raise rates this year, it's getting increasingly difficult to fight the message of the bond market,” he wrote for CNBC.com.
“I would prepare for a December rate hike of one-quarter-percentage point, to a half percent, despite my misgivings about such a move,” predicted Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street.
U.S. employers added a decent 156,000 jobs in September, even while an influx of job seekers lifted the unemployment rate slightly to 5 percent. The rise in people seeking work is an encouraging sign that Americans are more optimistic about their prospects, the Associated Press reported.
The job gain last month, though modest, suggested that the U.S. economy remains steady if not particularly strong. Wages also rose and are now increasing at a healthier pace than they were earlier in the economic recovery — a trend that may be drawing more people into the job market to look for work.
After seven years of pinning that rate at a record low near zero to try to spur more borrowing and spending, the Fed raised its rate modestly in December. It has not acted since.
"The September payroll report was a decent report that shows moderate job growth continues," Scott Anderson, chief economist at Bank of the West, wrote in a note. "In many ways, it was a 'Goldilocks' number — not too hot or not too cold — for the market and the Fed."
But Insana said the bond market didn't seem to care about the jobs data. “It behaved as if it got the all clear signal and it was full steam ahead for a rate hike this year,” he said.
After an initial dip in the bond market, yields on the 10-year Treasury note bounced back, climbing above 1.75 percent. That's the highest yield in several months.
“Fiscal levers used to stimulate economies require more government spending, hence more government borrowing, effectively relieving central banks of holding down rates,” he explained. “That also increases the supply of bonds, pushing down bond prices and pushing bond yields higher.”
Mark Vickery of Zacks Investment Research agrees that one should be too overoptimistic about the jobs report. He explains that details in jobs report suggest there’s more slack in the labor market than most have expected.
“’Real’ unemployment — referred to as the U6 in the BLS report — has remained unchanged at 9.7% for the past three months. Yet the Labor Force Participation Rate was up to 62.9% and 444K people have now gone back to work, so ‘full employment’ — now clearly a relative term — looks to have more slack than was earlier assumed. This actually backs up what the Fed has been asserting: that U.S. employment has more room to run,” he wrote.
“The three-month average is 192K jobs, indicating an overall slowdown in jobs creation, especially looking back through the past dozen quarters or so. This makes sense, too, considering that we are getting closer to full employment; there may be more ‘room to run,’” but it won’t be as fast,” he wrote.
(Newsmax wire services contributed to this report).
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