Switching Depositors

 

How it happened, in a picture:

Higher Treasury yields mean both lower bond prices and lower deposits (because depositors switch into money markets). And when yields go this high, this fast, something is going to break.   Surprisingly, it’s not the job market: At a committee hearing this week, Senator John Kennedy asked Chair Powell if his intention was to fight inflation by putting people out of work: “That's your job, is it not?" If so, Powell risks a poor performance review: The economy added another 311,000 jobs in February, according to this morning’s data. The unemployment rate (above) did tick up to 3.6%, however, which took some of the sting out of the report.    How can jobs and unemployment both be up? By having more new workers than new jobs: The labor participation rate for prime-age workers rose to a robust 83.1% in February, suggesting some combination of high inflation and higher wages has caused people to start looking for jobs again.    The other good-bad news: Wages rose a less-than-expected 0.2% in the month to February and are up 4.6% from a year ago. That’s below the rate of inflation, which, for all the attention they give it, seems like a curmudgeonly thing for the Fed to be worried about.   The Fed’s first target: Job openings were the first thing the Fed was aiming at and they’ve yet to hit it. Openings fell by 410,000 in February from the month before, but, at 10.8 million, job openings are still nearly double the number of people looking for jobs.   The target may be both smaller and further away than we think: Maybe reshoring manufacturing is not such a great idea? If the shortage of workers proves structural, the FOMC may have to look for more creative options in their fight against inflation.   Blowing up small banks is hopefully not top of the list.