{"id":16308,"date":"2018-05-24T06:53:57","date_gmt":"2018-05-24T06:53:57","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=16308"},"modified":"2018-05-24T06:57:33","modified_gmt":"2018-05-24T06:57:33","slug":"low-inflation-risk-keeps-yield-curve-safe","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/","title":{"rendered":"Low inflation risk keeps yield curve safe"},"content":{"rendered":"<p>The Fed is advancing interest rates at a measured pace, with the objective of restoring balance in financial markets rather than to curbing inflationary pressures. Only if inflation spikes is the Fed likely to adopt a restrictive stance.<\/p>\n<p>Elliot Clarke from Westpac sums up the FOMC (Fed Open Market Committee) view from their latest minutes:<\/p>\n<blockquote><p>Beginning with inflation, whereas the market has recently been concerned that inflation may be getting away from the FOMC (given annual CPI inflation at 2.5%yr and persistent strength in the oil price), the Committee is unperturbed.<\/p>\n<p>Instead of the CPI, the FOMC\u2019s benchmark remains PCE inflation, which is currently 2.0%yr on a headline basis and 1.9%yr for core&#8230;..<\/p>\n<p>To see upside inflation risks build, a stronger wage inflation pulse is necessary. At present the employment cost index is only reporting \u201ca gradual pickup in wage increases\u201d, and the signal from other wage measures is \u201cless clear\u201d. Two other important considerations for the pass through of wages to activity and thus inflation is that real hourly earnings growth is currently flat and the savings rate near historic lows. The capacity of households to boost consumption and thus inflation is therefore very limited.\n<\/p><\/blockquote>\n<p>Hourly wage rates are growing at a gradual pace.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" alt=\"Hourly Wage Rate Growth\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png?w=525&#038;ssl=1\" \/><\/p>\n<p>Personal savings are low.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" alt=\"Personal Savings\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-05-24-savings.png?w=525&#038;ssl=1\" \/><\/p>\n<p>And credit growth is modest.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" alt=\"Credit Growth\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-05-24-credit.png?w=525&#038;ssl=1\" \/><\/p>\n<p>So not much sign of inflationary pressure.<\/p>\n<blockquote><p>\n&#8230;.Turning to financial conditions, as yet there is no concern of them becoming an impediment to growth or policy. The 10yr yield has moved back to the highs of 2013, but the US dollar has only partly retraced its 2017 depreciation. Further, asset markets remain near recent highs.<\/p>\n<p>Equally significant however is the reference to being nearer neutral and a clear desire to keep the yield curve\u2019s positive slope&#8230;..<\/p>\n<p>We do not believe that the yield curve will invert in this instance, in part because higher deficits should see the term premium rise. However, the curve will remain comparatively flat versus history, restricting both the timing and the scale of further rate hikes. This is a key justification for both the market\u2019s and our own view of only two further hikes in 2018 and two more in 2019 \u2013 a stark contrast to the FOMC\u2019s seven hikes to end-2020.<\/p><\/blockquote>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" alt=\"Yield Differential\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-05-24-yielddiff.png?w=525&#038;ssl=1\" \/><\/p>\n<p>A negative yield curve &mdash; when 10-year minus 3-month Treasury yields falls below zero &mdash; would give a strong recession warning. But the yield curve is only likely to invert if the Fed steps up interest rate increases. With little sign of rising inflationary pressure at present, the prospect seems remote.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Fed is advancing interest rates at a measured pace, with the objective of restoring balance in financial markets rather than to curbing inflationary pressures. Only if inflation spikes is the Fed likely to adopt a restrictive stance. Elliot Clarke from Westpac sums up the FOMC (Fed Open Market Committee) view from their latest minutes: &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Low inflation risk keeps yield curve safe&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,13,34],"tags":[881,1828,1858,3821,3725],"class_list":["post-16308","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-inflation-economy","category-us-canada-countries-regions","tag-credit-growth","tag-inflation","tag-interest-rates","tag-personal-savings","tag-yield-curve"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Low inflation risk keeps yield curve safe - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Low inflation risk keeps yield curve safe - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The Fed is advancing interest rates at a measured pace, with the objective of restoring balance in financial markets rather than to curbing inflationary pressures. Only if inflation spikes is the Fed likely to adopt a restrictive stance. Elliot Clarke from Westpac sums up the FOMC (Fed Open Market Committee) view from their latest minutes: &hellip; Continue reading &quot;Low inflation risk keeps yield curve safe&quot;\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\" \/>\n<meta property=\"og:site_name\" content=\"the patient investor\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/profile.php?id=61572934660810\" \/>\n<meta property=\"article:author\" content=\"https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/\" \/>\n<meta property=\"article:published_time\" content=\"2018-05-24T06:53:57+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2018-05-24T06:57:33+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/static.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png\" \/>\n<meta name=\"author\" content=\"Colin Twiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Colin Twiggs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\"},\"author\":{\"name\":\"Colin Twiggs\",\"@id\":\"https:\/\/thepatientinvestor.com\/#\/schema\/person\/d42b18d516a80149d739845749ac6454\"},\"headline\":\"Low inflation risk keeps yield curve safe\",\"datePublished\":\"2018-05-24T06:53:57+00:00\",\"dateModified\":\"2018-05-24T06:57:33+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\"},\"wordCount\":427,\"publisher\":{\"@id\":\"https:\/\/thepatientinvestor.com\/#organization\"},\"image\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png\",\"keywords\":[\"credit growth\",\"Inflation\",\"interest rates\",\"personal savings\",\"Yield Curve\"],\"articleSection\":[\"Banks &amp; Interest Rates\",\"Inflation\",\"US &amp; Canada\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\",\"url\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\",\"name\":\"Low inflation risk keeps yield curve safe - the patient investor\",\"isPartOf\":{\"@id\":\"https:\/\/thepatientinvestor.com\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png\",\"datePublished\":\"2018-05-24T06:53:57+00:00\",\"dateModified\":\"2018-05-24T06:57:33+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#primaryimage\",\"url\":\"https:\/\/www.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png\",\"contentUrl\":\"https:\/\/www.incrediblecharts.com\/images\/2018\/2018-05-11-wages.png\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/24\/low-inflation-risk-keeps-yield-curve-safe\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/thepatientinvestor.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Low inflation risk keeps yield curve safe\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/thepatientinvestor.com\/#website\",\"url\":\"https:\/\/thepatientinvestor.com\/\",\"name\":\"The Patient Investor\",\"description\":\"Smart. 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Interest Rates The yield curve has flattened, indicating bond market expectations that the Fed will be forced to stop hiking rates soon. We are not so sure.\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Yield Curve","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":35713,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/07\/14\/interest-rate-hopes-dashed-as-cpi-climbs\/","url_meta":{"origin":16308,"position":1},"title":"Interest rate hopes dashed as CPI climbs","author":"Colin Twiggs","date":"July 14, 2022","format":false,"excerpt":"The hoped for dip in consumer price index growth has not materialized, with CPI growing at 9.06% for the 12 months to June. Oil and gas prices are two of the primary causes, with CPI Energy climbing 41.5% year-on-year. This feeds through into Food CPI, up 10.0%. CPI Shelter is\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"CPI","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-14-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-14-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-14-cpi.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-14-cpi.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":38490,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/11\/03\/fed-hikes-now-pain-comes-later\/","url_meta":{"origin":16308,"position":2},"title":"Fed hikes now, pain comes later","author":"Colin Twiggs","date":"November 3, 2022","format":false,"excerpt":"Fed Chairman Jerome Powell announced a 75 basis point increase in the Fed funds target rate at his post-FOMC press conference today: \"Today, the FOMC raised our policy interest rate by 75 basis points, and we continue to anticipate that ongoing increases will be appropriate. We are moving our policy\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Fed Funds Rate","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-11-02-ffr-hike.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-11-02-ffr-hike.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-11-02-ffr-hike.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":40323,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/01\/16\/cpi-eases-but-outlook-still-bearish-for-stocks\/","url_meta":{"origin":16308,"position":3},"title":"CPI eases but outlook still bearish for stocks","author":"Colin Twiggs","date":"January 16, 2023","format":false,"excerpt":"The consumer price index (CPI) growth slowed to 6.4% for the 12-months to December, down from 7.1% in November. Core CPI, which excludes food and energy, slowed to 5.7%. 10-Year Treasury yields retreated, testing support between 3.4% and 3.5% in response. Food inflation is declining but remains above 10% for\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"CPI & Core CPI","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-01-13-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-01-13-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-01-13-cpi.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":21112,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/07\/29\/gold-bonds-inflation\/","url_meta":{"origin":16308,"position":4},"title":"Gold, bonds &#038; inflation","author":"Colin Twiggs","date":"July 29, 2020","format":false,"excerpt":"Jeff Snider from Alhambra Partners argues that soaring Gold prices are not due to market fears of inflation but the opposite. Gold and bond prices rising in tandem flag concerns that central banks are failing in their efforts to create inflation. Failure would result in deflation. Low interest rates are\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":29952,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/12\/16\/powells-pivot\/","url_meta":{"origin":16308,"position":5},"title":"Powell&#8217;s pivot","author":"Colin Twiggs","date":"December 16, 2021","format":false,"excerpt":"In August 2020 the Federal Open Market Committee (FOMC) adopted flexible average inflation-targeting (FAIT), where the Committee would seek to achieve its 2 percent inflation target \"on average over time\". If inflation runs below target for some time, the FOMC will aim to return the average to 2 percent by\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Consumer Price Index (CPI)","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-15-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-15-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-15-cpi.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-15-cpi.png?resize=700%2C400&ssl=1 2x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16308","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=16308"}],"version-history":[{"count":4,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16308\/revisions"}],"predecessor-version":[{"id":16312,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16308\/revisions\/16312"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=16308"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=16308"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=16308"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}