I’ve mentioned before that there are only two prices that matter, energy and labor. The price of crude oil is a pretty good proxy for energy, and that’s declining. This morning we got the employment cost index for Q2, which barely moved, showing the lowest increase (0.2%) in the 33-year history of this report. The trend is not a happy one for the Fed’s inflation goals (and a good thing too). It clearly indicates a very weak economy and, taken with falling energy prices, shows a very powerful deflationary trend.
Of course stocks are up, because the weakness means that the Fed will not raise interest rates anytime soon. Yesterday, stocks were up because the economy was (supposedly) stronger in the second quarter, and how could that not be a good thing?
I still expect to see 30-year Treasury yields with a 1-handle, if not a 0-handle.