Bond Yields Plunge, Inflation Fears? Really? Where Are They?

US Treasury Yields 2021-07-06

Amusing Look at Inflation Fears

Consumer Expectations

On June 16, in Consumer Inflation Expectations Jump 7th Straight Month to a New Record High I commented "Inflation Expectations Are Meaningless."

That of course is heresy to the wizards at the Fed (and ironically most Fed detractors who believe the Fed only when it suits their purpose). 

For now anyway, inflation proponents cite expectations and fear of those expectations. 

Inflation Expectations

Inflation Expectations vs Year-Over-Year Inflation Measures 2021-05

Inflation Expectations vs Year-Over-Year Inflation Measures Detail 

Inflation Expectations vs Year-Over-Year Inflation Measures Detail 2021-05

After drifting sideways near the 3% mark, consumers started penciling in higher inflation expectations in March of 2021 and higher point predictions in December of 2020. 

One has to wonder how much of this is real opinion vs constant news recently of higher prices. 

Inflation Expectations Are Meaningless 

Contrary to widespread belief that inflation expectations matter, they are actually meaningless as the above charts show.

For most of eight years reported inflation was under 2% and often under 1%, and briefly negative. Yet, the look ahead median point prediction was never below 2.9%.

If expectations mattered, why did the CPI and PCE stay below 2% so long? Why are bond yields behaving as they now do?

It's Transitory 

A Debate Over Transitory

For months now, a few of us wayward souls have agreed with the Fed that price inflation (as measured by the CPI) is indeed transitory.

I commented on that many times, while also noting the Fed Has a Vested Interest to Lie

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