Weak Jobs Data Validates our Bullish Treasury Forecast

InfraCap Management
Sep 7
1 min read

The employment report printed weak at 22k vs.75k expected and the unemployment rate ticked up to 4.3%. We had forecasted that the Fed would cut 3 times this year as ultra tight Fed policy has caused the housing and construction investment to go into recession (see figure below). Recessions are caused by plunging investment, not consumption declines, with 12 out of 13 post WWII recessions precipitated by housing declines. We had forecasted that the recession in the old economy would cause the labor market to weaken, which was delayed by BLS data collection issues but now is fully reflected in the numbers. The current Fed is dominated by labor economists who are very focused on the weakening in the job market, which will motivate them to cut rates. The monetarists/supply side members of the FOMC had already been calling for rate cuts as they analyze tariffs as a tax that should be ignored for the purposes of formulating monetary policy. Its also important to note that real time inflation is already below the Fed’s arbitrary target of 2% as the BLS shelter component of CPI is delayed by two years (see figure below). We forecast that the 10-year treasury rate declines into the 3.5-4.0% range as more Fed rate cuts are priced into the Fed funds futures market. We are bullish on interest rate sensitive investments including preferred stocks, high yield bonds and small cap stocks.