Ahead of today’s September report on US consumer inflation, the Treasury market’s implied inflation forecast via 5-year maturities quietly ticked down to 1.24% in Wednesday’s trading (based on daily data via Treasury.gov). The crowd’s estimate of future pricing pressure for 5-year Notes marks the lowest level since February 2016. Although market-based estimates of future inflation should be viewed cautiously, the latest dip is a reminder that a downside bias continues to prevail in this corner of economic expectations.

The market’s inflation outlook via 10-year Notes (calculated as the yield spread on the nominal security less its inflation-indexed counterpart) has also fallen lately, settling at 1.49% yesterday (Sep. 9), fractionally above Tuesday’s level. But the big picture on Mr. Market’s inflation outlook is unambiguous, namely: manage expectations down.

Federal Reserve Chairman said as much yesterday, commenting that low inflation is one of the “longer-term challenges” for US monetary policy. He recognized that not everyone agrees with this analysis. “You may be asking, ‘What’s wrong with low inflation and low interest rates?’” Rightly or wrongly, the Fed is prepared to act to combat what it sees as a disinflation threat.

Economists, however, aren’t looking for a smoking gun in today’s release on consumer prices for September (due at 8:30 eastern). Econoday.com’s consensus point forecast sees headline CPI edging up to a 1.8% annual change. Although that’s slightly below the Fed’s 2.0% inflation target, it’s not obvious in this data set that disinflation is a problem. Indeed, core CPI (a more reliable measure of inflation’s trend) has been running above the 2.0% target lately and is on track to hold at a 2.4% annual pace through September.

How should we square the divergent inflation profile for core CPI vs. the Treasury market’s outlook? One explanation: the global decline in bond yields (including the rising prevalence of negative rates in some countries) is driving foreign investors into relatively high-yielding Treasuries. In turn, that’s driving US government rates down, for reasons that are less about American disinflation vs. a desperate search for yield around the world and within the US.

Regardless, the Fed is expected to extend its recent run of rate cuts at the Oct. 30 policy meeting. Fed funds futures are pricing in an 85% probability that the central bank will trim its target rate by 25 basis points to a 1.50%-1.75% range in the upcoming FOMC announcement.

The Treasury market certainly appears to be pricing in softer rates ahead. Indeed, the downside momentum on the 2-year yield (widely considered the most sensitive maturity for policy expectations) looks robust, based on a set of exponential moving averages (EMA). As the chart below shows, the configuration of the 50-, 100- and 200-day moving averages implies that investors are still pricing in lower yields for the near term.

Yet judging by the crowd’s expectations for today’s CPI data, the market’s disinflation worries appear a bit excessive. Note, however, that it’s premature to dismiss the potential for a downside surprise, based on Tuesday’s weaker-than-expected report on wholesale inflation for September. Notably, the annual trend for producer prices slumped to a 1.4% rate—the weakest in nearly three years.

A modest outlook for the upcoming third-quarter GDP report due on Oct. 30 is a factor too. Although the median estimate via a recent set of nowcasts projects that that output will hold at a 2.0% increase, one of the inputs into this estimate fell in yesterday’s revision. The Atlanta Fed’s GDPNow model ticked down to a 1.7% rise for Q3 growth.

If economic growth remains subdued, inflation will remain contained and perhaps drift lower. For the moment, however, something approximating the Fed’s target appears likely, give or take. But thanks to a range of geopolitical factors (US-China trade war, impeachment risk, and Turkey’s invasion of Syria), there’s greater uncertainty than usual in the weeks ahead. To quote the Fed’s stock announcement on guidance: we’re data dependent, more so than usual.