Weak US jobs report spoils Fed rate hike plan

By all means, raise interest rate in June. With only 38,000 jobs created in May, and downward revisions in two prior months, this is such an opportune moment for the Federal Reserve to move forward with a rate hike in a week, or so. NOT!

Yields on the 10-year Treasury have slipped below 1.75 percent this morning, hardly a sign of an accelerating economy laden with inflationary pressures.

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The "Financial Times" reports that some $10 trillion worth of sovereign debt carries negative interest rates.

Rates are negative in some 23 countries around the world.

Even as U.S. rates decline, they remain more attractive than most other debt instruments in the world.

However, falling, and negative, rates continue to send signals that the world economy, and increasingly the U.S. economy, cannot support rising rates at this juncture.

There has been a false idea in the economic community that a rate hike would cause the yield curve to steepen, reflecting the belief that the economy is strong enough to warrant a rate hike, or two, or three, this year.

In reality, the yield curve would steepen in advance of Fed action, owing to the reality that markets are anticipatory mechanisms.

And if, indeed, the economy were strengthening, long rates would have already risen to be followed by a hike in short rates by the Fed.

That's how the interplay between the bond market and the Fed has developed historically.

The bond market is sending quite the opposite message. In fact, the global bond markets are also tilting toward further weakening in economies around the world, including that of the United States.

Imagine a rate hike in a week or so. It would actually serve to drive longer-term interest rates lower in the U.S.

There is virtually no precedent for the Fed to have begun a rate hiking cycle with growth and inflation below target, with manufacturing near, or in, a recession, with job growth decelerating and global risks as evident as they are today.

I have been quite insistent that the Fed was done raising rates last December. To me, it was always a "one and done" operation.

We will NOT see the Fed raise rates this year, or possibly for a time beyond that. The bond market is sending that message quite clearly.

Whether we see negative rates in the U.S., or so-called "helicopter money" fall from the skies, remains an open question.

But I would bet that negative rates are more likely in the months or years ahead than the Fed normalizing rates through a series of rate hikes that begin in June.

The Fed must deal with the economy as it is, not as it wishes it to be, lest it makes a mistake that costs the country even more than lost income from interest-bearing securities.

Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. Follow him on Twitter @rinsana.

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