Morgan Asset Management's Karen Ward stated that signals from the U.S. labor market indicate the Federal Reserve "should not raise interest rates" in September, adding that the Treasury's intervention in the bond market leaves her feeling "uneasy."
Money markets currently price a 42% probability that the Fed will hike rates by 25 basis points at its mid-September meeting.
July's year-over-year U.S. inflation rate stood at 2.5%, marking the slowest pace since 2021. Meanwhile, employment data showed that U.S. employers unexpectedly cut jobs last month.
In a Tuesday interview, Ward, Chief Market Strategist for Europe, the Middle East, and Africa at Morgan Asset Management, noted: "Headline inflation remains elevated, but whether that persists depends entirely on the labor market. And the U.S. labor market shows no signs that employment is stable enough for workers to demand higher wages."
Ward expressed that markets hope Fed Chair Kevin Warsh will offer "a bit more clarity" during his speech at the annual Jackson Hole symposium on Friday regarding how the central bank views the economic landscape and which factors are critical to rate decisions.
Warsh's task has been complicated by Treasury Secretary Scott Bessent's plan to repurchase U.S. government bonds in an effort to lower long-term yields.
Commenting on this unconventional debt management strategy, Ward said: "I have to admit, this time feels different."
Regarding the Treasury's announcement to at least double the scale of buybacks for 10- to 30-year notes starting in September, she remarked: "It makes me a bit uneasy."
She explained: "Because when a central bank does this, it is constrained by its inflation target. But we don't know what constraints or policy anchors the Treasury Secretary has, other than trying to keep rates low."
Recommended reading: Treasury Management Strategy Loses Predictability; Investors Warn Government Financing Costs Could Rise.
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