Investors Pile Into Treasurys After Weak Jobs Report - Effect on debt ceiling negotiations? UPDATED
-Shocked by a surprisingly downbeat jobs report Friday, investors rushed into safe-haven Treasury bonds, breathing new life into the market’s three-month long bull run.
Many investors had bet on a strong jobs report by selling Treasurys. Such short bets were further galvanized by the announcement that President Barack Obama will hold a briefing to talk about jobs during mid-morning Friday, a sign interpreted by many investors that the jobs report could be decent.
But the U.S. economy only added 18,000 jobs last month, far below the market consensus of 125,000 in a Dow Jones Newswires survey, re-igniting fears about the pace of economic recovery in the world’s biggest economy. The unemployment rate also rose unexpectedly to 9.2% from 9.1% in May.
Red meat for the GOP nominee pool. And here.
I wonder whether the jobs report will give impetus to Senator Boehner to more readily seek compromise on the debt ceiling to avoid default and an aggravation of the economic woes. The last thing the GOP wants is any blame whatsoever for a stalled or worsening economy going into the 2012 elections. Boehner will have to sell a compromise to his TP colleagues as an effort to keep the pressure on President Obama, rather than as a way for the President to benefit from GOP concessions. It seems to me the best political strategy would be to give the President all the rope he needs. Things are unlikely to improve significantly in the medium term, and Boehner will want to keep the finger of blame pointed squarely at the Democrats. The unexpectedly poor jobs report and 9.2% unemployment puts the President and Democrats in an awkward position regarding debt ceiling negotiations. Failure to reach an agreement will serve to spread blame for economic problems across both parties, even though it will look like a short-term political loss by the White House. However a failure to reach a compromise in time to preclude sovereign default will be a pyrrhic victory for the GOP, as voters will wonder what might have been if the GOP had compromised.
As we head into the home stretch of debt ceiling negotiations, the game has changed subtly. The GOP might be forced into greater compromise short-term than they had wanted, with a view to keeping overall pressure and responsibility for the economy on the Democratic side of the aisle. Meanwhile, the President will not be able to turn down a reasonable offer by the GOP, forcing the White House to accept a deal which might look like a “win” initially, but will challenge the Administration on the economy heading into the election.
So in the short term, at least, the dismal jobs report might help get the economy stabilized by taking the possibility of sovereign default off the table - if Boehner is still strong enough to move the TP base.
Update:This from Boehner would seem to support my thinking.