I was looking through some old monthly charts and came across one I had created a couple years ago to illustrate the confidence that the market had in the Great and Powerful Federal Reserve not to inflate away peoples’ value. It was a chart of the CPI in ratio to the 2 year Treasury yield, which was in an uptrend from 2013.

Of course the Fed had been steadfastly holding ZIRP for years but still, the 2 year bond had confidence that the Fed would remain on top of inflation. Well, not any more. Either the bond market thinks there is no inflation (go tell that to rising long-term yields, TIP vs. TLT and the yield curve) or it has scrapped the pretense of confidence as players shimmy down the curve. The 2 year yield vs. CPI (bottom panel) had dropped below the trend line while gold vs. CPI had broken upward and SPX vs. CPI had surged again as of July 1 at the last data collection.

CPI is going to be reported tomorrow (along with consumer sentiment) as we wind down a big data week and head into next week’s sure-to-be hysterical FOMC media frenzy. I just thought this was interesting. How about you?

(Click on image to enlarge)