With which he referred to the firm anchoring of medium-term inflation expectations at the 2014 Jackson Hole meeting. At that time, however, the break-even rates for 5-year inflation expectations had fallen sharply shortly afterwards, invalidating Draghi’s argument and forcing the ECB to launch a massive asset-buying program.
Barrel: “Jerome Powell risks exposing the Fed to speculative market movements. The tug-of-war between the Fed and financial markets will focus on developments in inflation expectations and pressures will mount. T-Notes yields tested the 1.60% threshold while 30-year Treasuries traded above 2.30%. These two due dates will be issued in the next week. The spread between two- and ten-year bonds traded higher towards 143bp. The bearish consensus is building fast, according to positioning polls. The put volumes are twice as high as those traded on the call side.
If the Fed is looking to step in to curb upward pressure on yields, a twist operation seems the most appropriate. The institution holds US $ 885 billion in government bonds and Treasury bills due in 2021 and could shift these to longer-term maturities.
The Fed’s reluctance appears to be increasingly at odds with the underlying economic reality. By the end of the first quarter, the US economy will have overcome the pandemic-related setback with expected growth of around 10% in Q1 – before the fiscal stimulus program of 1.9 million could even take effect. The Fed’s stance will be increasingly difficult to maintain as consumer prices rise more than 3% this spring. “
The full “MyStratWeekly” from the French investment house can be found here in the original English as a PDF.
The topic of the week is dedicated to the semiconductor industry in the tense area of the relationship between the USA and China.
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Ostrum Fed reticence increasingly odds economic reality