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Tuesday, March 8th, 2011
inflation swaps

It was only recently that I had a chart regarding inflation expectations, depicted via the breakeven yield on ten-year TIPS.  I’m returning to the theme because of further changes since then — and because of an email debate with a well-known blogger on the Fed’s policy now and the impact on commodities prices.

Above you’ll find another way to look at those expectations.  These are inflation swaps for four time periods.  You can see the strong rise in near-term expected inflation, which makes sense given the emergence of some higher prices at the retail level and more on the way.  But all of the maturities made noticeable moves up in the last few weeks, and it’s worth noting that they are above the Fed’s informal inflation goal of 2%.

My bottom line to him:  “I’m not suggesting that the Fed hit the brakes, but going the speed limit might make sense for awhile given a return to relative normalcy.”  (Chart:  Bloomberg terminal.)