Posted 9/17/2023, 2:46:41 PM

Treasury Yield Breakout Raises Specter of Deflation, Stagflation or Severe Inflation

The 30-year Treasury bond yield recently broke its long-term downtrend, raising questions about the macroeconomic outlook.
Three potential scenarios are deflation, stagflation, and crack-up boom inflation. Each has reasonably high odds.
Deflation could result from the Fed's tight monetary policy overpowering lingering inflation.
Stagflation is possible if corrosive inflation persists despite rising rates.
A crack-up boom would see markets disregard hawkish Fed policy, fueling severe inflation.

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Relevant topic timeline:

8/27/2023

Global inflation pressures could become harder to manage in coming years, research suggests

Global inflation pressures could intensify in the coming years due to rising trade barriers, aging populations, and the transition to renewable energy, posing challenges for central banks in meeting their inflation targets.

9/5/2023

Interview with The Currency

The ECB expects core inflation to come down throughout the autumn as strong price increases from a year ago fall out of the data; however, energy and food prices are expected to remain bumpy, with inflation standing at 5.3% overall. The ECB emphasizes the need to contain the second-round effects of inflation and to make it clear that the current inflation episode is temporary. Additionally, the central bank does not believe that strategic price controls are the best way to fight inflation. The ECB's modeling approach is focused on assessing what is going on and using models to understand how it will play out, with the understanding that there are limitations to all models. Climate change and demographic transitions have implications for monetary policy, but the net impact on inflation is relatively contained. The ECB has managed to avoid peripheral spreads widening through its policy responses, including the pandemic emergency purchase program and pooled fiscal resourcing. In the future, short-term rates are expected to remain high for a while but come down in the later part of the decade, which helps contain spreads.

9/8/2023

Chicago Fed: Rate hikes have inflation on track to 2% without recession

Economists at the Chicago Fed argue that recent rate increases have brought inflation on a path to 2% without causing a recession, creating a "goldilocks" scenario for risk-taking in financial markets.

9/8/2023

Fed's $100B Losses and Pandemic Policies Could Push Traditional Companies Toward Crypto

The United States Federal Reserve's financial woes and potential implications for cryptocurrency are discussed on the latest episode of "Macro Markets," highlighting challenges posed by inflation and the consequences of loose monetary policies during the pandemic.

9/13/2023

Krugman: Inflation Easing Toward Fed's Target Without Recession as Supply Ramps Up

The war on inflation is almost over, as higher supply rather than lower demand has driven disinflation, creating a "Goldilocks" scenario in which inflation cools without a recession, according to economist Paul Krugman and a new report.

9/19/2023

Deutsche Bank Predicts End of Stable Growth as Recessions Become More Frequent

The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.