No Jobs
“The market right now is not pricing in any risk premium for inflation,” he said in a telephone interview on Dec. 12. “Given the fact that the Fed is so accommodative and probably would like inflation to be higher rather than lower, it’s probably not a bad time to own 10-year TIPS.”
Yields on the benchmark 10-year TIPS fell 0.04 percentage point to 0.697 percent last week, according to Bloomberg Bond Trader prices. The price of 0.375 percent TIPS note due in July 2023 rose 11/32, or $3.44 per $1,000 face value, to 97 4/32.
U.S. companies may be undermining the Fed’s strategy of suppressing borrowing costs to encourage investment. Instead of adding more people or machinery, companies increased spending on software by 19 percent since the 2007 business-cycle peak, according to the Bureau of Economic Analysis.
That’s one reason why it’s taken more than four years since the end of the recession to bring the nation’s jobless rate down to 7 percent from 10 percent in 2009, which was the highest in 26 years.
Black Friday
The lack of wage growth will probably damp consumer spending and keep retailers from raising prices, according to Dan Heckman, a fixed-income strategist at U.S. Bank Wealth Management, a unit of U.S. Bancorp that oversees $112 billion.
Average hourly earnings rose 2.2 percent in October, less than the two-decade average of 3.1 percent, according to Labor Department data. Wages have increased less than 3 percent in every month since June 2009, the longest stretch since the government began releasing the data in 1965.
U.S. retailers suffered the first spending drop on a Black Friday weekend since 2009, increasing the likelihood companies from Wal-Mart Stores Inc. and Target Corp. will extend the deep discounts that’s already hurting their profit margins.
“It’s very difficult to get any kind of wage increases,” Heckman said in a telephone interview on Dec. 9. “Consequently, we don’t see any kind of inflation pressure.”