June 14, 2021
Janet Yellen shocked the markets last week in an interview where she praised the potential of higher inflation. She said central banks have been hamstrung by low-interest rates that have left them with little power. The newest CPI could be an end to the low inflation but hasn't yet lifted rates. The 5% annualized inflation track is the highest since 2008, but bond yields aren’t budging. 10-year treasury yields fell to 1.43%, well below TIPS implied inflation, and stocks are similarly running high. Spending packages, wage growth, and Fed QE is already priced into the bond market, so what is keeping rates suppressed? There are few things it could be apart from growth. The bond market is screaming a slump in the second half of the year, and a Fed that will have to keep interest rates low.
FINSUM + Magnifi: It's good news that the Fed has been able to lift inflation, and the Fed is happy it isn’t Japan, but the potential of stagflation is looming.
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