February opened with a strong January employment number as the Bureau of Labor Statistics reported an increase of 467,000 jobs. Instead of reassuring markets after a rough ride in January, it only served to fuel speculation that a strong labor market would lead the Federal Reserve to be more aggressive with rate increases than previously indicated, in its attempts to control inflation. The release of the January average annual inflation number of 7.5% in mid-February proved to be a shock to system.
Overnight, futures markets began pricing in a 50-basis point increase in March, and the two-year U.S. Treasury yield gained 24 basis points. This flattened the yield curve as the ten-year U.S Treasury struggled to get to 2%. The next step after flattening is to invert – which is usually interpreted as a sign of an impending recession. Investors’ worry was that more aggressive Fed rate... ...
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