US Federal Reserve officials were itching to kick up benchmark borrowing costs a fraction of a percentage point sooner rather than later. Members not-so-quietly set the table for an increase this month, and the Fed chair herself, Dr Janet Yellen, did little to pump the brakes in a speech before the Memorial Day weekend of May 30.
Traders listened eagerly and responded accordingly. Then came Friday, June 3.
The US Labour Department released a greatly disappointing jobs report, which showed that the United States added just 38,000 jobs last month, the worst reading since 2010. Unemployment declined to 4.7 per cent as people left the workforce and labour force participation declined.
"The slowdown in job growth looks pretty pervasive across industries," Mr Michael Feroli, chief US economist at JPMorgan Chase, said in a Bloomberg News article. "It raises some questions about the momentum of growth and about the outlook."
The market's response was fierce. Yields on two-year Treasuries plunged. The US dollar weakened against its peers. Emerging-market currencies rallied towards the steepest gain in more than two months while stocks and bonds climbed. And the probability of that June rate increase fell to just 4 per cent from 22 per cent the day before, according to futures contracts tracked by Bloomberg.
THE RIGHT NUANCE
That was the beauty of Yellen's recent remarks - it was enough to put the markets on notice, without painting herself into a corner if the data should sour.
INTEREST-RATE STRATEGIST GENNADIY GOLDBERG, on Fed chair Janet Yellen's May 27 remarks
"This was quite shocking - it's way under expectations," said Mr Christopher Sullivan, chief investment officer at United Nations Federal Credit Union. The Fed "will postpone a nearby rate hike for sure".
Fed officials are evaluating incoming economic data to help decide whether the US economy is strong enough to handle what would be only the second rate increase in about a decade. The Fed raised rates from near zero in December for the first time since 2006.
During a May 27 appearance, Dr Yellen had neither signalled nor ruled out a June rate move. Scheduled to speak at two back-to-back events starting 12.30pm yesterday in Philadelphia (Singapore time 12.30am today) for the first time since the jobs data, she may need to update her tone slightly in response to renewed labour market uncertainty.
The appearances give her a chance to talk July back onto the table by signalling that the June data may have been a blip. Alternatively, she could push expectations back further by emphasising the negative developments. She'll likely do neither.
"The last thing Yellen wants to do is talk herself into a corner," said Mr Gennadiy Goldberg, an interest-rate strategist at TD Securities in New York, who expects Dr Yellen to stick to her call for an increase in the "coming months" while emphasising that it depends on data holding up. "That was the beauty of Yellen's recent remarks - it was enough to put the markets on notice, without painting herself into a corner if the data should sour."