December 9, 2014

A DEFLATIONARY EPOCH:

Drop in Inflation Gauge May Complicate Outlook for Interest Rates (Min Zeng, 12/09/14, Dow Jones Business News)

An inflation gauge closely watched by Federal Reserve officials has fallen to the lowest level since the financial crisis, potentially complicating the interest-rate outlook as investors brace for a likely Fed rate increase as soon as mid-2015. [...]

The falling inflation expectations help to explain the sharp decline this year in benchmark Treasury yields. The 10-year U.S. note on Tuesday yielded 2.22%, down from 3% at the end of 2013 and far below the forecasts that many Wall Street strategists started the year with. Many investors and analysts continue to expect yields to rise this year as U.S. growth picks up, though falling inflation readings have softened many of the most aggressive forecasts.

Adding to the swirl, a broad selloff in the energy markets since the summer has further reduced inflation readings. Many economists expect lower oil prices to boost growth in the U.S. and elsewhere, but the timing of the gains is unclear.

The point, of course, is that not only should interest rates not go up but they are abnormally high.

Posted by at December 9, 2014 5:33 PM
  

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