Low inflation expectations right after QE3

[NCR85]

US 2 year breakeven rate (difference in interest rate between TIPS and regular treasuries, indicating the market's pricing in of the CPI inflation rate) is slightly above 1%, just weeks after QE3 took place: http://www.bloomberg.com/quote/USGGBE02:IND

It doesn't seem realistic for the Fed to raise expectations again through QE4, does it? These expectations even already take future rounds of QE in account.

I find it hard enough to wrap my head around the fact that markets bet so eagerly against the Fed's own targetting regime like this, but now it happens right after QE Infinity was embarked on. I think this makes quite a dire prediction about the disinflationary effect the fiscal cliff will have.

Thoughts?

[GRG55]

Re: Low inflation expectations right after QE3

US 2 year breakeven rate (difference in interest rate between TIPS and regular treasuries, indicating the market's pricing in of the CPI inflation rate) is slightly above 1%, just weeks after QE3 took place: http://www.bloomberg.com/quote/USGGBE02:IND

It doesn't seem realistic for the Fed to raise expectations again through QE4, does it? These expectations even already take future rounds of QE in account.

I find it hard enough to wrap my head around the fact that markets bet so eagerly against the Fed's own targetting regime like this, but now it happens right after QE Infinity was embarked on. I think this makes quite a dire prediction about the disinflationary effect the fiscal cliff will have.

Thoughts?

The term fiscal cliff implies that gravity takes over and dire things happen the moment the country "steps over the edge".

Even if the tax cuts expire, etc. it won't really change anything suddenly in one day. If the Democrats and the Republicans are silly enough to pirouette together off the edge, they will probably use the Wile E Coyote moment (before the descent to splat starts) to do a deal. The repeated showdowns over the debt ceiling, going back to the Clinton Administration, and how those resolved may be a good indicator of how things might play out.



The Democrats can't politically get away with cutting spending, so they will raise taxes. The Republicans can't politically get away with raising taxes so they will cut spending. And between the two of them they'll get it done. Barely. It might not be "morning in America", but the sun will rise the next day :-)

[BadJuju]

Re: Low inflation expectations right after QE3

The one question I have: should I expand my investments in precious metals now or wait until a deal is brokered?

[lektrode]

Re: Low inflation expectations right after QE3

The Democrats can't politically get away with cutting spending, so they will raise taxes. The Republicans can't politically get away with raising taxes so they will cut spending. And between the two of them they'll get it done. Barely. It might not be "morning in America", but the sun will rise the next day :-)

+1
the wile-e moment will likely be right before the xmas break, just like in 2009, when they had to pass obamascare to read it?
which will allow for the 'santa clause' rally, signalling the top of the pump n dump - that sends 'the message' to the bernank that its time for more printing?

but these 2, noted today at seeking alpha - seem perty damn pertinent to the discussion:

3 Key Metrics That Show Why We Can't Avoid Recession

Basel III And Gold


with some of the comments quite interesting...

pls consider this a RFC's >any takers?

[shiny!]

Re: Low inflation expectations right after QE3

Does seekingalpha use Fred's charts from iTulip?

[jiimbergin]

Re: Low inflation expectations right after QE3

Does seekingalpha use Fred's charts from iTulip?

do you have the link where a similar chart is here on itulip?

[metalman]

Re: Low inflation expectations right after QE3

do you have the link where a similar chart is here on itulip?

from latest article on front page...



do google images search... find 27,357 others.

[NCR85]

Re: Low inflation expectations right after QE3

Remember also that 76% of that decline was not projected in pre-crisis forecasts of the labor force participation rate. These 76% of labor force dropouts are involuntary ones entirely due to crisis conditions.

Add them to U-3 and you get a figure around 10% that has barely dropped since the 2009 trough. An unemployment rate for more in line with the size of the output gap, which according to certain pre-crisis forecasts has widened.

[don]

Re: Low inflation expectations right after QE3

and then there's the invisible self-employed unemployed.

a friend of mine has a nephew who had a Comcast contract to install their systems - trucks, crews, etc. He also had a home theater business. Comcast tightened their belt, cutting him loose. The home theaters left with the housing bubble wealth affect. Meanwhile his wife's health club is running below overhead costs. They now receive food stamps but are not unemployed.

[*T*]

Re: Low inflation expectations right after QE3

Does seekingalpha use Fred's charts from iTulip?

No, FRED is federal reserve economic data provided by st louis fed. Fred the admin is a pun on this.

http://m.research.stlouisfed.org/fred/

[shiny!]

Re: Low inflation expectations right after QE3

No, FRED is federal reserve economic data provided by st louis fed. Fred the admin is a pun on this.

http://m.research.stlouisfed.org/fred/

Thanks for this. Silly me, I was wondering if I should email Fred the Admin to alert him/her about possible plagiarism. Finally, one less thing to worry about!