Expect Interest Rate Volatility as the Fed Pivots

Last Edited by: LPL Research

Last Updated: September 09, 2024

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Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with an update on what's happening in the global markets and a call to action for investors. First, expect volatility in yields. As investors adjust expectations to Fed policy for the rest of this year, we should expect volatility like we did immediately following Friday morning's payroll report. As policy adapts to economic conditions, bond market volatility often rises. The move index, Merrill Lynch volatility estimate, is a measure of implied volatility of Treasury options and during periods of rate changes interest rate volatility often rises, even during the mid-1990s when the Fed was able to orchestrate that soft landing. Investors dealt with fixed income volatility, and we should expect something like this again in the current environment. Second, fewer temp help workers foreshadows further weakness. As you see in this chart, business demand for temporary help often falls as business activity slows.

Jeffrey Roach:

This is an important detail to watch because the flip side is also the case. As an economy begins to emerge out of a slowdown, businesses often pull in temp help workers to manage the beginnings of a new cycle. So keep your eye on this data series. Third, part-time employment is growing. One way for businesses to manage labor costs these days is to hire part-time workers. This strategy was especially pronounced during the Great Financial Crisis, but now there's also a demand side of the narrative and it's likely structural in nature. And of course, I'm referring to the reimagined nature of work. Individuals are placing more emphasis on self-care and improved work life balance. And of course, the early retirements of many in 2020 have pushed up a higher percentage into the part-time category. So what does this mean for investors and business owners? Expect a slowdown in hiring in the near term, expect interest rate volatility to tick up as the Fed starts cutting rates. And finally, we should expect markets to be a bit choppy as we move closer to the elections. That's all for now, and if you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, Chief Economist at LPL Financial, explains why businesses add less temporary help to their payrolls and the three things investors should expect in the near term.

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