John Williams runs the New York Fed. His job is setting interest rates. He just announced that interest rates are high because the economy is strong. Then he said he's still deciding whether to raise rates again.
Picture this. You're a bond trader. You spent six months building a model that incorporates unemployment data, inflation expectations, consumer sentiment surveys, and forty-seven different technical indicators. Williams walks into a press conference and says yields are up because things are good. You could've gotten the same analysis from a Magic 8-Ball that only has one answer.
The Treasury market sold off after his comments. Retail traders immediately started googling "what does yield surge mean" and "is my bond ETF f*cked." Both questions have the same answer but they'll spend three hundred dollars on a trading course to avoid hearing it.
Williams gets paid to observe that when the economy runs hot, borrowing costs go up. This is like a weatherman getting paid to look out the window and confirm that rain is wet. The only difference is the weatherman doesn't pretend he might make it rain harder next month just to keep you guessing.
The beautiful part is he's still weighing another rate hike. Translation: he told you absolutely nothing. Yields are high because of strength. Maybe we'll make them higher. Maybe we won't. Check back next month when I'll say the exact same thing using different words.
Somewhere right now a day trader is drawing a fibonacci retracement on a 10-year Treasury chart because John Williams used the word "strong" instead of "robust." That trader will lose money. Williams will keep his job. The yield curve doesn't care about either of them.
Photo by David Vives on Unsplash
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