Yesterday’s quarterly labor cost index, which rose to 1.1%, should also remind us that the other important factor in the rise in long-term rates was the resilience of the economy and the labor market in particular. In fact, it was the faster wage growth figure that managed to reverse the bullish momentum yesterday and point yields higher again.
The Fed has guided markets to firmly expect tonight’s FOMC meeting to go ahead despite a more benign inflation backdrop, accelerating third-quarter GDP growth, the labor market remaining tight and inflation remains well above the 2% target. But he has done so by pointing out that higher long-term rates are now doing some of their work.
That said, European rates markets faced a more dovish set of data, as the Eurozone’s preliminary CPI fell below 3% and third-quarter GDP growth came in negative. Yesterday’s bullish flattening was probably even more due to the general direction given by events in the United States and Asia than to internal data. That said, European Central Bank (ECB) officials are still trying to anchor initial rates by emphasizing the prospect of keeping rates high for longer.