Don't look at current inflation but inflationary expectations. These numbers are measure through break-even rates show a market that expects to see more inflation. We are not talking about 1970's and early 80's levels, but we are seeing levels of approximately 2.50 for the next ten years for US Treasuries. The swap rates suggest inflation that will be closer to 2.75. This is above the Fed's target of 2%.
There is an inflation difference with QE3. The first two QE programs were implemented to stop deflation fears. This program is supposed to improve employment. There is no talk about deflation fears with QE3. Inflation tail risk is increasing.
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