Bond traders’ inflation outlook cooled in 22 for the first time in years
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(Bloomberg) – Bond traders have pulled back this year on their expectations for U.S. inflation a decade ahead, suggesting growing confidence that the consumer price boom of 2022 is under control. .
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While economic data shows signs that the series of oversized interest rate hikes by the Federal Reserve is beginning to have an effect on price pressures, market indicators show an annual decline in inflation perceptions of traders for the first time in at least two years.
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The so-called breakeven rate on five-year five-year futures — a widely watched indicator of market outlook — has fallen 9 basis points to around 2.18% since last December. While that’s still above the 2% pace the Fed is trying to target for actual inflation, it’s the first annual decline in that metric since 2019. A similar gauge for hedged Treasuries inflation, meanwhile, is down year-on-year for the first time since 2018.
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Of course, for much of this year, it hasn’t felt so benign. The five-year, five-year measure at one point hit nearly 2.7% amid fears that inflation could linger as the energy shock from the Russia-Ukraine war supercharged worries. This helped strengthen the Fed’s resolve to tighten policy, which in turn raised market interest rates across the spectrum, both nominal and real.
But with signs that Fed tightening, among other factors, could ultimately push the US into recession, upward pressures on rates and inflation expectations are easing somewhat.
Here is a series of indicators on how the market views US inflation.
Inflation overview
Inflation News
- Wholesale electricity prices jumped more than 6,000% in parts of the United States at the height of the recent brutal cold spell, a sign that Americans will likely face significantly higher winter heating costs. high once invoices are mailed.
- Near-term inflation expectations in the United States fell further at the end of the year and consumer confidence improved, according to a survey by the University of Michigan, reflecting an easing of price pressures and relief at the gas pump.
- Spanish inflation slowed for a fifth consecutive month in December, nearly halving since mid-year as energy costs continue to fall in the eurozone’s fourth-largest economy.
- UK house prices fell for a fourth month, adding to concerns that a deeper collapse could now be underway.
Major Upcoming US Releases
- January 6: Monthly employment report, including average wage data, for December
- January 12: December Consumer Price Index
- January 13: December import and export price indices; University of Michigan inflation expectations gauges for January (preliminary)
- January 18: December Producer Price Index
- 26 January: GDP report, including PCE deflators, for the fourth quarter (first reading)
- January 27: Personal income and expenditure report, including personal consumption expenditure gauges, for December
- February 1: political decision of the Federal Open Market Committee
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