Wednesday, September 24, 2014

The U.S. market is sending a worrisome signal on inflation

Investors are downgrading their expectations for inflation over the next half decade, sending a concerning signal about the pace of the U.S. economic recovery.
Market-implied inflation forecasts took a nose-dive after Federal Reserve policy members suggested a more aggressive timeline for hiking key short-term interest rates last Wednesday.
One of the more closely-watched gauges of consumer prices fell for the first time in 16 months, showing that the specter of inflation growth emerging during the second-quarter didn’t quite manifest. The annual rate came in at 1.7%.
A look at breakeven rates tells us a lot about where the markets think inflation is headed. The So-called breakeven rates are the difference between 5-year Treasury note 5_YEAR, +0.91%  yields and 5-year Treasury inflation-protected security yields. The differential, representing the rate of inflation necessary for TIPS to outperform their nominal counterparts, acts as a rough gauge of where inflation might be headed over the coming five years.

http://www.marketwatch.com/story/the-us-market-is-sending-a-worrisome-signal-on-inflation-2014-09-24?siteid=yhoof2 

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