Rising Rates and the Bigger Picture

This week, we examine housing, the labor market, rising interest rate expectations, and our broader investment thesis. The Census Bureau's latest report on new home sales modestly exceeded expectations, but sales remain historically subdued as the housing market continues to slow across much of the country. Initial unemployment claims unexpectedly declined, yet the headline figure masks several important developments, including weaker hiring, the retirement of baby boomers, and slower immigration, all of which have reduced labor force growth and complicated the interpretation of employment data. Meanwhile, the yield on the 10 year Treasury note climbed to 4.7 percent, its highest level of the year, as investors responded to concerns over an escalating conflict and the prospect of higher oil prices. The Federal Reserve remains in an increasingly difficult position, confronting a series of supply shocks that monetary policy is poorly equipped to address. Our view remains unchanged. Even if policy rates do not rise further, expectations that interest rates will remain elevated are likely to place additional pressure on households, weighing on consumer spending and broader economic activity.