The Fed Signals It’s Not for Turning, But Markets Are

Nonsense and Sensibility

It’s my job to make sense of markets, and I do it gladly. It can be fascinating. The problem is that this implies that there is some sense in what markets are doing. At times like this, such a belief grows much harder to sustain.

Let’s start with the behavior of the two-year Treasury yield, one of the most important building blocks of global finance, over the last month since the eve of publication of shockingly bad inflation data for May. It’s been quite a ride. In the space of a month, two-year rates went from 2.7% to 3.4% and back again — and in the last 24 hours, they’ve made it back to 3%. Somersaults like this are just not normal.

Why did the bond market make its latest swerve? In the current febrile environment, data that are generally regarded as distinctly second-tier can have a big impact. Wednesday morning brought at least two data points to spark the thought that maybe a recession isn’t yet inevitable, even if the market has suddenly tried to price that in. First, the JOLTS survey of vacancies showed more job openings than had been expected. Yes, the total number is down slightly, but it’s still far higher than had ever been seen before the post-pandemic reopening. On the face of it, with that many employers looking to hire that many people, it’s crazy to brace for an imminent recession: