The Biden administration has come under fire for distorting the labour market and pushing the natural rate of unemployment higher. Republicans have been vocal in their critique of disincentive effects embedded within pandemic relief.
So far, the Treasury market has been prepared to look beyond the surge in issuance. However, this week’s JOLTS report provides a clear warning: the Biden administrations’ good intentions could be thwarted. The labour market is already overheating. Job openings soared in March.
Today’s CPI numbers will also provide a stern test for Treasuries. The core inflation rate, excluding shelter, more than doubled in April, from 1.61% to 3.58%.
The Fed will argue, with some legitimacy, that some of these increases are transitory. However, the JOLTS report may be harder to dismiss.
The latest National Delinquency Survey cast further doubt on the case of rock-bottom interest rates. The early delinquency rate (30-59 days) plunged to a record low in Q1. If the Fed persists with rock-bottom interest rates, the yield curve will steepen. Break-even inflation rates will continue to rise.
Summary
• US CPI not all transitory
• JOLTS data supports Republicans case
• Bidenomics, a risky experiment
