Benchmark 10-year Treasury yields hit their highest level since 2011 on Monday, and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that the Federal Reserve’s attempts to stem soaring inflation will dent the economy.
Yields jumped after data on Friday showed that U.S. consumer prices accelerated in May as gasoline prices hit a record high and the cost of food soared, leading to the largest annual increase in nearly 40-1/2 years.
The Fed is expected to hike rates by 50 basis points when it concludes its two-day meeting on Wednesday, with traders now seeing a 75 basis point increase as having a 21% probability.
UBS strategist Rohan Khanna said hawkish European Central Bank communication alongside the inflation print “have completely shattered this idea that the Fed may not deliver 75 bps or that other central banks will move in a gradual pace.”
Investors expect that the Fed will hike interest rates higher than previously expected this cycle as it tackles stubbornly high prices pressures.
Fed funds futures traders now expect the Fed’s benchmark rate to rise to 3.97% by May, around 1 percentage point higher than was expected last month, and up from 0.83% now.
Deutsche Bank said it now sees rates peaking at 4.125% in mid-2023.
As the Fed tightens policy, nerves about an economic downturn are rising. The two-year, 10-year Treasury yield curve briefly inverted on Monday, a reliable indicator that a recession will follow in one to two years.
[price increases result from too much money chasing too few goods, thus either too much money or too few goods can cause inflation. the current inflation is NOT primarily a function of monetary policy [too much money] but a secular function of biden implementing the New Green Deal with across-the-board polices designed to destroy domestic fossil-fuel production ...
the resulting run-away energy prices are causing price increases because energy is THE primary input into everything that makes up modern living, including resource extraction, resource refining, manufacturing, transportation, farming, fertilizer and agricultural chemicals, food preservation, medical care, communications and telecommunications, computing, internet, online commerce, construction and construction materials, clothing, and heating and cooling ...
as a consequence, trying to “fix” the above inflation by raising interest rates will not only NOT fix the current inflation, but will crash the economy ...]
I occasionally post this for posterity...
M Kehoe STILL has a claim of mortgage fraud against Deutsche Bank .
5.56mm
To say this inflation is not the result of a massive increase in the money supply via QE, combined with a major reduction in productivity...is delusional.
Just look at the M1 chart posted above.