With commentators offering increasingly dismal warnings about the inflation situation in the United States, one might think that the US Federal Reserve has failed completely at its primary task. But the bond market is telling a different story, and there is no reason to think that it is driven by doves.
BERKELEY – As of Friday, May 6, the bond market expected US consumer price inflation to average 2.5% between five and ten years from now. That is the rate of inflation needed to equalize returns on inflation-indexed and non-indexed US Treasury securities. And given that CPI inflation has been running higher than the rate associated with the implicit price deflator for personal consumption expenditures, I count that 2.5% five-year, five-year-forward rate as hitting the US Federal Reserve’s 2% price-deflator inflation target.
BERKELEY – As of Friday, May 6, the bond market expected US consumer price inflation to average 2.5% between five and ten years from now. That is the rate of inflation needed to equalize returns on inflation-indexed and non-indexed US Treasury securities. And given that CPI inflation has been running higher than the rate associated with the implicit price deflator for personal consumption expenditures, I count that 2.5% five-year, five-year-forward rate as hitting the US Federal Reserve’s 2% price-deflator inflation target.