• 804 days Will The ECB Continue To Hike Rates?
  • 804 days Forbes: Aramco Remains Largest Company In The Middle East
  • 806 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,206 days Could Crypto Overtake Traditional Investment?
  • 1,211 days Americans Still Quitting Jobs At Record Pace
  • 1,213 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,216 days Is The Dollar Too Strong?
  • 1,216 days Big Tech Disappoints Investors on Earnings Calls
  • 1,217 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,218 days China Is Quietly Trying To Distance Itself From Russia
  • 1,219 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,223 days Crypto Investors Won Big In 2021
  • 1,223 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,224 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,226 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,227 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,230 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,231 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,231 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,233 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Inflation Expectations

One way to determine inflation expectations is to take the treasury or nominal yield (not inflation adjusted) and subtract the TIPS or real yield (inflation adjusted). The difference of the two is the expected inflation.

Nominal Yield (minus) TIPS = Inflation expectation

The chart below shows inflation expectations across various maturities using the above formula.

Inflation Expectations

A few interesting points to make from the data

A few months prior to the end of QE1 in the Spring of 2010, inflation expectations began to come down. The same time economic data was pointing towards a double dip recession.

By the summer of 2010 after QE1 was completed inflation expectations had fallen on average from 2.2% to 1.7% That is when the Fed began to "fear deflation."

QE2 was then announced and inflation expectations moved above the highs during QE1 and currently stand at 2.6%, well above the Fed's target of 1-2%.

In April 2010 inflation expectations peaked and it is quite possible assuming QE2 does end in June that the same is happening this April. The Fed could use the cover of lower inflation expectations before formally launching QE3 and if history repeats itself they will only need a few months. Considering the wall the US economy hit this past month, that may be more than it can handle this summer.

 

Back to homepage

Leave a comment

Leave a comment