Interest Rates: Fed's Cut Could Mean Higher Bond Yields
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What top market moves set the stage before the Fed's interest rate cut?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. The stock market and currencies have been reacting to the run-up to the Federal Reserve's expected interest rate cut that it announced on Wednesday. Let's not forget, though, bond prices. We'll examine that angle in a moment. First, some money and market news you should know. If you were a victim of the Equifax data breach and signed up to be in line for a $125 check as part of the settlement, the FTC has some bad news. You'll probably get nowhere near that amount. Turns out about 4.5 million people visited the FTC's settlement website in the weeks since the settlement was announced. And since only $31 million was allocated for those cash payments, spreading the amount across such a large number of consumers would lower the amount of money those who file claims could potentially receive.
The FTC recommends requesting free credit monitoring instead. In the updated FAQ page on its website, the FTC says that consumers can still choose the cash option on the claim form, but they'll be disappointed with the amount they receive, and they won't get the free credit monitoring. And compensation for U.S. workers grew more slowly in the second quarter, and that caught economists by surprise. who felt that the country's historically low unemployment would continue to boost wages and benefits. The Labor Department says the full measure of wages and benefits for civilian workers rose 0.6% in April through June. Now, wages and salaries alone actually increased by 0.7% in the second quarter, But benefits payouts, which includes health coverage, retirement benefits, and paid leave, were up half a percent, but that was below the 0.7% rise registered in the first quarter.
Now, looking back to a year ago, total compensation increased 2.7%. In the second quarter, that's a hair lower than the first quarter's 2.8% annual rise. It also reflects a decline in benefits costs. The 2.3% year-over-year increase in benefits costs was the weakest since March of 2017.
How did the Equifax settlement and FTC advice affect consumers' payouts?
If you follow bond prices, you know they edged higher in advance of the Federal Reserve's expected quarter percentage point interest rate cut on Wednesday. Wall Street Journal reporter Sam Goldfarb is here with some details behind that. So, Sam, bond prices have risen and subsequently yields have fallen, not just in anticipation of the Fed's interest rate move, but also a significant slowdown in manufacturing activity.
There was some data that came out Wednesday before the Fed decision out of Chicago that showed some slowdown in business activity there. But just generally in recent months, there has been almost this global economic slowdown that has really driven down government bond yields globally, particularly in Europe where government bond yields are now negative in places like Germany, which is something that is quite unusual. And that's helped drag down U.S. Treasury yields as well.
This was a survey of purchasing managers in the Chicago area. It was significantly lower than what the Wall Street Journal, a survey of economists, were expecting. Is this the first time we've seen any glimmer of the slowdown overseas show up here in the U.S. ?
No, I don't believe so. I think that data has been somewhat volatile in a report like this Chicago one. It's kind of known for its volatility. On the other hand, this is the second month in a row that this survey has shown an actual contraction in activity. This is one of several regional surveys. You'll have some regional surveys that come out a little bit better than expected and seem to show that things are relatively okay in the U.S., others that are more negative like this one. But just overall, the big picture, you have signs that economic growth in the U.S. is still there. We're not heading towards a recession, but there does definitely seem to be kind of a little bit of a slowdown from the tax cut fueled growth of last year.
Now, there are no guarantees, but if it seems the Fed winds up leaning toward no more interest rate cuts for the remainder of this year, that could actually push the short-term bond yields higher?
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