Mediocre Inflation Data Dims Rate Outlook

US stocks are grinding higher for the third day in a row, while Treasuries are selling off marginally as markets digest a variety of economic releases and corporate earnings.  US data once again painted a mixed picture of the world’s largest economy.  The latest weekly jobless claims data was better than expected, with claims falling to a seasonally adjusted 253,000, which matched a 42-year low.  Economists were forecasting a rise in claims to 270,000.  Claims have now been below 300,000, a threshold typically associated with a healthy labor market, for 58 consecutive weeks, the longest streak since 1973.  The claims data indicates that despite mediocre first quarter growth, the market for job seekers remains on solid footing.  On the flip side, a separate report showed that US inflation remains tepid at best.  The Labor Department’s Consumer Price Index rose for the first time in four months, but the 0.1% increase fell short of expectations for a 0.2% gain.  Core prices, which strips out the volatile food and energy components, also advanced only 0.1%.  On a year-over-year basis, both headline and core CPI dipped 0.1% to +0.9% and +2.2%, respectively.  Yellen recently stated that “transitory” factors were behind the recent jump in prices and the moderation in today’s CPI data appears to support that view.

After seeing today’s inflation data, Atlanta Fed President Lockhart backed away from his recent view that the US economy could support higher interest rates, potentially as soon as the next FOMC meeting later this month.  Lockhart doesn’t feel the US economy is “highly vulnerable”, but he did revise his 2016 GDP forecast down.  Lockhart wouldn’t rule out a hike in June, but he would need to see faster economic growth, continued monthly job gains of 200,000+, and firming inflation before he could advocate for it.  It will be interesting to see if some of the other recently hawkish-sounding committee members revert to Yellen’s more cautious stance in light of the tepid inflation data.
 
The US Treasury is scheduled to auction $12 billion 30 year bonds this afternoon.  All three major US stock indexes are up close to 0.25%, while Treasury yields and swap rates are up 2-4 bps across all major maturities.  Both WTI and Brent crude are up less than 0.5%.