Latest data suggest that consistent FED over the rate hike this year might be succeeding to anchor the inflation expectation over the longer horizon. 5 year break even inflation rate as shown in the chart is rising much …
Latest data suggest that consistent FED over the rate hike this year might be succeeding to anchor the inflation expectation over the longer horizon.
5 year break even inflation rate as shown in the chart is rising much faster rate after falling to the lowest point in January.
The rate has jumped nearly 50 basis points after making a low in of 1.16 percent in January.
Similarly other measure like 5 year, 5 year forward inflation expectation is hovering near 2.20 percent after similar slump below 2 percent in January.
Similar trend can be seen in 10 year break even inflation rate, hovering near 2 percent.
As argued before, FED could be pushing the inflation expectation through forward guidance affecting the term premium.
Such success could be short lived if actual inflation as measured by CPI, PCE, PPI etc. fail to arrive.
Impact -
Latest push of the dollar against the currencies could be partly fueled by the above expectation anchoring and rise.
Under such circumstance dollar is expected to strengthen further and yields firmer over the medium term.
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