Fixed Income Monthly Report
July 2024
President, Fixed Income & Data Services
ICE
Inflation: do wage-price spirals pose a threat?
While markets have cheered the latest U.S. Consumer Price Index (CPI) figures, tackling inflation remains a challenge in the post-pandemic world. There’s general agreement that a mix of government stimulus, supply chain disruptions and pent-up demand triggered the dynamics which continue to trouble central bankers today - what’s less clear, is the influence of individual components.
While inflation has fallen from a pandemic-era peak of 9.1% to 3% in June, several economists argue that wage growth and housing inflation could take longer to moderate. In terms of the former, rising prices can mean workers demand higher wages to support their purchasing power. The fear is that this dynamic might lead to a wage-price spiral - the so-called “doom loop” where rising wages drive higher business costs, prompting them to raise prices, and fueling demand for further wage increases.
Is this concern justified? In 2021, the wage surge was a response to a world where skilled labor was tough to find as we emerged from the pandemic - one of many reasons the Fed began to hike rates aggressively. Today, labor market growth shows signs of slowing. While average hourly earnings for private-sector workers are still above their long-run average, wage growth has softened. All signs indicate that wages are headed back toward a “Goldilocks” belt, where they support consumer spending and economic growth without triggering a wage-price spiral.
Historical data also suggests scant evidence for wage-price spirals. An IMF study across advanced economies going back to the 1960s studied episodes where at least three out of four consecutive quarters had accelerating consumer prices and rising nominal wages. It found that only a small minority of these periods was followed by sustained acceleration in wages and prices - and that inflation and nominal wage growth tended to stabilize, with the result that real wage growth was broadly unchanged.
Elsewhere, other elements of CPI are being watched closely - such as housing, an area whether ICE offers a plethora of data-rich insights on mortgage market health. As consumers’ largest expenditure, housing inflation has an outsized impact on overall CPI and stood at 5.1% in June , down from a peak over 8% in March 2023. The downward trend is promising, even if it will take a while to play out. Is the inflation genie back in the bottle? Not quite, but for now, markets seem far less fearful of its specter.
Data Science at ICE
Data isn't just information; it's our foundation in helping clients to navigate global financial markets. At ICE, we use data and technology to help make markets more efficient - across fixed income, energy, equities, and commodities.
Fixed Income in Focus
In this latest episode, Carol Schleif, Chief Investment Officer at BMO Family Office, shares her perspective on the higher-for-longer rates environment, the traditional 60/40 allocation, and considerations around the transition to lower carbon energy sources into investment decision-making. Hear more in her discussion with ICE's Isabella Bezzone.
Bringing value to clients as they migrate to the cloud
What trends are we seeing with clients’ use of the cloud? What is ICE doing in the cloud and how can ICE’s data in the cloud benefit clients? In this article, Al Pastro, Chief Technology Officer of ICE Data Services, answers these questions and more.
ICE to launch Treasury Clearing Service to increase transparency and enhance resilience in the U.S. Treasury market.
This material contains information that is confidential and the proprietary property and/or a trade secret of Intercontinental Exchange, Inc. and/or its affiliates (the “ICE Group”), is not to be published, reproduced, copied, modified, disclosed or used in any way without the express written consent of the ICE Group. This document is provided for informational purposes only. The information contained herein is subject to change and does not constitute any form of warranty, representation, or undertaking. Nothing herein should in any way be deemed to alter the legal rights and obligations contained in agreements between the ICE Group and its respective clients relating to any of the products or services described herein. Nothing herein is intended to constitute legal, tax, accounting, or other professional advice.
The information contained herein is provided “as is” and the ICE Group makes no warranties whatsoever, either express or implied, as to merchantability, fitness for a particular purpose, or any other matter. The ICE Group makes no representation or warranty that any data or information (including but not limited to evaluated pricing) supplied to or by it are complete or free from errors, omissions, or defects. Without limiting the foregoing, in no event shall the ICE Group have any liability for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits) in connection with any use of and/or reliance on the content of this document even if advised of the possibility of such damages.
This document is not an offer of advisory services and is not meant to be a solicitation, or recommendation to buy, sell or hold securities. This document represents ICE Group’s observations of general market movements. Trades and/or quotes for individual securities may or may not move in the same direction or to the same degree as indicated in this document. Please note that the information may have become outdated since its publication.
Trading analytics available from ICE Data Pricing & Reference Data are a point in time output and as such dependent on and take into account the information available to ICE Data Pricing & Reference Data at the time of calculation. ICE Data Pricing & Reference Data does not have access to all relevant trade-related data or dealer quotes, and the utility of the output may diminish depending upon amount of available data underlying the analysis. The inputs utilized in each of the trading analytics services described herein depend on the methodologies employed by each such service and may not be the same as the inputs used in the other trading analytics services. There are many methodologies (including computer-based analytical modelling) available to calculate and determine information such as Trading Analytics described herein. ICE Data Pricing & Reference Data’s trading analytics may not generate results that correlate to actual outcomes, and/or actual behavior of the market, such as with regard to the purchase and sale of instruments. There may be errors or defects in ICE Data Pricing & Reference Data’s software, databases, or methodologies that may cause resultant data to be inappropriate for use for certain purposes or use cases, and/or within certain applications. Certain historical data may be subject to periodic updates over time due to recalibration processes, including, without limitation enhancement of ICE Data Pricing & Reference Data’s models and increased coverage of instruments. Although ICE Data Pricing & Reference Data may elect to update the data it uses from time to time, it has no obligation to do so.
Fixed income evaluations, continuous evaluated pricing, end-of-day evaluations, evaluated curves, model-based curves, market sentiment scores, and Fair Value Information Services related to securities are provided in the US through ICE Data Pricing & Reference Data, LLC and internationally through ICE Data Services entities in Europe and Asia Pacific. ICE Data Pricing & Reference Data, LLC is a registered investment adviser with the US Securities and Exchange Commission. Additional information about ICE Data Pricing & Reference Data, LLC is available on the SEC’s website at www.adviserinfo.sec.gov. A copy of ICE Data Pricing & Reference Data, LLC’s Form ADV is available upon request.
Trademarks of the ICE Group include: Intercontinental Exchange, ICE, ICE block design, NYSE, ICE Data Services, ICE Data, and New York Stock Exchange,. Information regarding additional trademarks and intellectual property rights of the ICE Group is located at www.ice.com/terms-of-use. Other products, services, or company names mentioned herein are the property of, and may be the service mark or trademark of, their respective owners.
Fixed Income
Manage risk, uncover opportunities, and make informed decisions in real-time with ICE’s end-to-end fixed income solutions. Reimagine your fixed income workflow from price transparency & discovery and efficient execution through to performance analysis.