Breakeven inflation rates in the United States have recovered from their crisis swoon, but remained at depressed levels. This is in contrast to the rather feverish inflation predictions that are coming from the usual sources, like gold enthusiasts.
This article is brief, just commenting on what I see as the implications of current pricing. I am largely reiterating my views that appeared in Breakeven Inflation Analysis. I am seeing commentators discuss the implications of low "real" yields, which I think is the wrong premise. As I discussed in Section 4.2 of my book, the breakeven inflation rate is what matters. The quoted yield on inflation-linked bonds (in my view, "real yield" is a term to be avoided, due to the ambiguity in the definition created by economists) is just the residual of the two metrics that matter: the benchmark nominal yield, and the breakeven inflation rate. All the quoted yields are telling us is that the markets are predicting inflation to be somewhat lower than desired, and that New Keynesian central bankers at the Fed will be New Keynesians....
Wednesday, August 5, 2020
Breakeven Inflation Unsurprisingly Low _ Brian Romanchuk
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https://gsiexchange.com/fed-admits-dont-fully-understand-inflation/
“ During Wednesday’s press conference, Fed Chair Janet Yellen, the highest-ranked economist at the helm of the sole institution responsible for America’s monetary policy, just made an admission that should have left most Americans stunned, speechless, if not worried: “We don’t fully understand inflation.” She continues, stating that “the shortfall of inflation this year is more of a mystery."
“We .... don’t ... understand .... inflation...”
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