- by New Deal democrat
Today Neil Irwin of "the Upshot" tells his readers in the NYT that:
You knew all that back in December, so you would have expected that interest rates would be steady or even up significantly this year. And you would have been very wrong: Ten-yearTreasury bonds yielded 3 percent to start the year, a figure now down to 2.2 percent.
So something else is going on unrelated to the Fed or to the growth picture in the United States. And it seems to involve the outlook for inflation.
O]the last few months [there] has been ... a sharp drop in inflation expectations. But why would that be? After all, standard economic theory would suggest that if the economy is strengthening, it should push up inflation. Workers have a better shot at getting a raise now that the unemployment rate is under 6 percent than they did when it was double digits, for example.
That’s true, of course, but the United States is no island. And right now, there are some powerful forces pulling prices down from around the world.Hers's a clue as to what "something else is going on." First of all, my long leading indicators are mixed, and literally none of the short leading indicators have rolled over.
Now, to the point: when the Fed announced it was considering the "taper" in May of 2013, Treasury yields jumped from 1.5% to over 3.0%. In short, they grossly overreacted and have been compensating for that all of this year.
Since 1974, consumer inflation in the United States has always and everywhere been about the price of Oil. Here's a graph of core (i.e., ex-food and energy) vs. headline inflation from Doug Short:
With Europe and possibly China weakening, the US looks pretty good. Hence the flight to the safety of US Treasuries.
As a result of which, there has been a boomlet in refinancing mortgages, not to mention the money people who buy gas are now keeping in their pockets to be saved or spent otherwise.
Apparently Neil Irwin has never heard of this.