By Ye Xie and Michael Mackenzie
Fifteen minutes after the April employment report hit early Friday, President Donald Trump seized on the surprisingly strong job growth to ratchet up his pressure on Federal Reserve Chair Jerome Powell, saying there was no reason to hold off on cutting interest rates.
Bond traders came to the exact opposite conclusion.
The pace of hiring — as well as a manufacturing report on Thursday that wasn’t as downbeat as expected — drove traders to dial back rate-cut bets that had steadily mounted as Trump’s trade war unleashed havoc in financial markets and sowed fears of a US recession.
After piling into short-term Treasuries, anticipating the Fed would start easing policy as soon as next month to contain the fallout, they reversed course. Two-year yields shot up, staging the biggest two-day jump since October, and futures traders started pricing in what Fed officials have been consistently trying to drive home — that they will remain in wait-and-see mode until there’s more evidence that the economy has turned.
“With inflation being above the Fed’s target, tariffs which can move prices higher and a still solid labor market, I think the Fed is unlikely to do anything,” said Priya Misra, portfolio manager at JPMorgan Asset Management. “But they are data dependent and the data could turn weaker by the time the Fed meets mid-June.”
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