Perhaps because the Fed has sent the message that a new regime for rates has started and they will be lower in the near future, or because other central banks are lowering rates as well with what appears to be a great degree of coordination, the market is starting to price an inflation pick up. On the chart below you can see the breakeven rate for 10 year TIPS (10 year inflation, in 10 years), and it has increased substantially, very fast. It’s still too early to tell, but it appears that just as the Fed feels comfortable with the current level of inflation, and has started to ease, a new wave of high prices may be brewing. It’s inevitable to look for comparisons with the 60’s and 70’s, when the Fed controlled inflation, only to see a big price increase due to the break up of the gold pattern established on Bretton Woods. Are we at a new defining moment for inflation?
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