Bond investors are decidedly pessimistic because falling joblessness and a strengthening economy hasn’t translated into consistent wage gains or consumer demand that was prevalent pre- crisis, said Bradley Wilson, a fixed-income manager at Boston Private Wealth Management, which oversees $9 billion.
Hourly earnings tumbled by the most on record in December, while retail sales fell. Prior to that, U.S. wages were flat or rose just 0.1 percent in five of the previous nine months.
“Wage growth has got to improve,” Wilson said. Without that, “we just don’t see inflation on the horizon.”
Lower energy prices, far from helping Americans, will ultimately hurt the U.S. economy and send yields on Treasuries even lower this year, according to Jeffrey Gundlach, the co- founder of DoubleLine Capital, which oversees $64 billion.
While cheaper oil fueled growth at the end of 2014, the expansion may disappoint this year as spending and hiring in the energy industry dry up and cause a “ripple effect” in the economy, he said.
Scare Tactic
Hiring from oil-producing states such as Texas, Oklahoma and North Dakota has accounted for 67 percent of U.S. jobs growth since 2007, data compiled by Bloomberg show. A report on Jan. 2 showed companies are putting off investments on petrochemical-related products in anticipation of price cuts.
“There’s a more sinister side to the oil decline,” Gundlach said in a Jan. 14 webcast. “Growth for the U.S. may be downgraded as we move past the middle of the year.”
That should be a warning for the Fed, which is preparing to end six years of near-zero rates sometime this year.
In the central bank’s Dec. 17 statement, policy makers said they expect inflation to rise toward its target as the “transitory effects of lower energy prices” recede.