Leader Month in Review
November 17, 2014
Economic Data Releases:
Over the course of the last month, the front end of the Treasury curve has sold off, while the back end is flat (see table above). In the credit markets, high yield has rallied alongside equities, while investment grade credit spreads are still at the high for the year (see chart1).
although the Fed's argument for keeping rates at the zero bound still includes unemployment language, the argument against a health jobs market no longer holds water. The headline U-3 unemployment rate is only 0.3% above the "natural rate of unemployment" or the level of the unemployment below which inflation begins to increase, shown in Chart 2 as the unemployment gap. Similarly, the undermployment rate has dropped 2.2% over the last year.
With recent inflation measures coming in well below the Fed's 2% target and the dollar's appreciation importing disinflation, it will be interesting to see if the labor market can force the Fed's hand into raising rates earlier than sustained uptick in inflation (see chart 3).
Upcoming Economic Data Releases: