Gang Hu of WinShore Capital Partners said markets are locked into a pattern that makes it more likely the Federal Reserve will keep hiking rates.
A year ago, Gang Hu, an inflation trader at New York hedge fund WinShore Capital Partners, made the prescient call that inflation would be “stickier than most people imagine.” Now, he’s flagging the risk that financial markets are locked in a “self-defeating feedback loop” that makes it more likely the Federal Reserve will need to keep raising interest rates. Hu’s argument boils down to one point: that it will likely require a recession to successfully stamp out inflation, period.
Friday’s U.S. jobs report for June, along with the Fed’s most recent minutes, lends some credence to Hu’s view. While job gains came in below expectations at 209,000 for last month, accompanied by downward revisions to May and April figures, average hourly earnings rose by 0.4% for the month and 4.4% over the past year. Wages are just one of the “multiple structural forces” that continue to push inflation above the Fed’s 2% target, Hu said via phone on Friday.
As of Friday afternoon, stocks DJIA SPX COMP were higher after the June jobs report, which came one day after a blockbuster private-sector jobs reading rattled investors and reignited rate-hike fears. One- TMUBMUSD01Y through 7-year Treasury yields TMUBMUSD07Y moved lower as fed funds futures traders pulled back slightly on their expectations for a post-July Fed rate hike.
Others, like Chris Ainsworth, chief executive of Pave Finance in New York, said that the Fed is still not achieving its goals, considering inflation remains above the Fed’s 2% target and the compounding effects of high inflation for so long. In an email, Ainsworth said the full impact of the Fed’s rate hikes won’t be see until late this year and the risks of a deeper-than-expected recession are continuing to rise.
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