Charles Schwab's Kathy Jones: People will probably spend as long as job growth remains healthy

Treasury yields climbing to new highs for the year yesterday after yet another hot economic report confirmed the resilience of the US economy. Casting a shadow on the feds rate path with us now check Kathy Jones, Chief fixed income strategist at Schwab Center for Financial Research. Kathy great to have you with us here on set. Thanks for having me. You actually think rates are going to go higher? Possibly up to as much as 4.8%? Yeah, I think the next stop is probably 4 3/4. So 4.8, assuming that you know we don’t get better news on inflation or some indication of a slowdown in labor market etcetera, but I don’t see what’s to stop it between now and about four and three quarters. If rates are high and the economy is doing well, that’s not a bad thing. If rates are high and the economy is not doing well, that’s a very bad thing. And So what is the scenario that you’re banking on at this point? We actually think that over the long term the the economy cools off a little bit, consumers our spending, but they’re also using a lot of debt to finance it and we’re seeing delinquency rates on credit cards and auto loans turn up. So we do think there’ll be some slow down on consumer side and that inflation will ebb, but we’ll probably have to wait until later in the year for that to happen. You’re still expecting two rate cuts. Yes, we still have them penciled in. It’s getting dicier every day because of the communications from the Fed, you know are changing. But I do think, you know, we have to consider that you have a Fed funds rate of 5 1/2% and you have an inflation rate and the core PCs 2.8, there’s still a big spread. They’re a high real rate. If we are correct that things slow down a little bit, inflation continues to add, there’s room for the Fed to cut. Do you think Jay Powell will say anything today that will give you any real sense of any of it? Oh, that’s a tough one because it’s hard to keep moving the goal posts. You know, one day they’re looking at the labor market, the next day they’re looking at something else. I I think he will stay with the mantra that they can afford to be patient, that things are on track and they’ll they’ll wait till later in the year. You seem pretty optimistic still about the consumer, but you know as they take on more debt and they use credit cards to finance their debt, those rates are going higher along with treasury yields. And so I’m wondering at what point you are you do you get concerned about the consumer and how much they are able to handle? Yeah, the concern comes in when job growth slows down. So it’s kind of like people have jobs, they spend money, they feel free to use debt financing for that unless you’re at the you know, very stress level which we’re seeing with some of the lower income folks. But in general, as long as job growth is healthy, people will probably spend. But we are looking for job growth to AB a bit from here. It’s been extraordinarily strong. I do think it’s going to slow down later in the year. What role does issuance, treasury issuance play in in your whole forecast here? Not very much, OK. And the reason is that if you try to find a correlation between treasury issuance and yields, you can’t find it. So you know, short term historically or historically, I mean I’ve been started on trading desk many years ago and it was always the, the thought that well when issuance picks up, you know yields will rise and that really if you look at the numbers, it really doesn’t happen. So yeah, we’ll get some bad auctions here and there. It’s not great that the treasury has to issue more as debt goes up, but I don’t think that that’s a make or break for the market. Kathy, thank you. Thank you.