Two rollercoaster days, brought to a climax by the non-farm payroll data. The unexpectedly high 172K non-farm payroll data sent the entire market into a panic, with the swap market pushing the probability of a rate hike this year to over 70% in one go. Will there be a rate hike? At least in my opinion, the Fed will likely maintain the 3.5%–3.75% range in June and continue to observe. A rate hike this year is an overblown narrative priced in by the market. Right now, it’s clear the market has been spooked by major headlines, with the probability of a rate hike this year hyped up to 72.7%. But this is just a short-term knee-jerk reaction. A strong labor market doesn’t necessarily mean an overheating economy, nor does it mean inflation is hard to control, and it certainly doesn’t directly trigger a rate hike. American workers are getting poorer, forced back into low-wage labor markets just to make ends meet: - While nominal wages in May grew 3.45% year-over-year, the current real inflation rate is 3.8%, meaning the real purchasing power of American workers is in negative growth territory. Several consecutive quarters of inflation pressure have rapidly drained household balance sheets. - Data shows that high-paying jobs in financial activities dropped by 22,000, while the bulk of new jobs came from leisure and hospitality (+70,000) and local government (+55,000). If the economy were overheating, companies would be aggressively expanding in high-productivity, strongly pro-cyclical core industries. And that’s exactly the point: ordinary Americans, struggling with high prices and shrinking real wages, are being forced to take low-paying gigs in restaurants and hotels just to make ends meet. This survival-driven increase in labor supply doesn’t create sustainable demand growth (because the money is swallowed by inflation as soon as it’s earned). The Fed leadership is well aware of this. On the contrary, it signals that high interest rates are already deeply eroding the real economy. If policymakers mistake this bottom-up survival rebound for inflation and blindly restart rate hikes, we could fast-forward to a credit and consumer spending collapse. No rate hikes, no rate cuts, and we’re not yet at a rock-and-a-hard-place bottom. But risk markets will likely have to endure the pressure of a high-interest-rate environment for a while longer.