Loading ...Something notable took place during today’s auction of $40 billion in 4-Week Treasury bills: the yield at which they sold, which came at 2.365%, was the same yield as the 3-Month Bills issued just three days ago, on Monday, Dec 3, confirming that the market is starting to price out an expectation for a hike during the March meeting.
Another place to watch the collapse of the Fed’s credibility, and dot plot implied forecasting skills, is the collapse in 5 and 10 Year breakeven rates, which are plunging today – largely on the back of the drop in oil – and dragging Treasury yields to levels not seen since the late summer. Here a bigger problem for the Fed is that with the five-year inflation rate expectation dropping to just 1.70%…
… the Fed may be cornered as any hopes of inflating away the debt are fading with inflation expectations once again getting “unanchored” this time to the downside, leaving Powell with just one option: to once again start monetizing the deficit, i.e. prepare for QE4 some time in late 2019 or early 2020.