We have dealt a lot recently with historically low interest rates and their implications on not only the cost of housing and mortgages, but also implications for consumer credit and inflation. Although we have explained home price affordability in the San Francisco Bay Area before, we haven’t discussed the large variance in regional real estate prices.
Every few months, we here at DQYDJ like to check in on the market’s expectations of inflation. There are lots of variables in the market – not least of which is the ending of the Federal Reserve’s open market purchase of bonds known as Quantitative Easing 2.0. Still, even with the conflicting signals of historically high gold prices, ridiculously low mortgage prices, and out of control commodity prices, the market isn’t pricing out of control inflation. As a matter of fact, the inflation that it is pricing in is decently low. Enough rambling, let’s take a look.
We haven’t looked at inflation expectations since November 15! Quantitative easing, historically low interest rates, and a rise in consumer spending haven’t been enough to increase inflation past a tame (again, historically low) 0.7% since December of 2009. However, we live in the real world and even if we were spared from inflation’s clutches today, we might not be so lucky in the future. On that note, let’s look at the market’s inflation expectations – which we calculate by subtracting the Treasury’s Daily Real Curve Rates from the Daily Treasury Yield Curve.
It’s been a while since we’ve checked in on inflation expectations in the market for treasury bonds ant T-Bills. However, with recent expansionary programs everywhere like, such as the program lovingly named Quantitative Easing 2.0. Let’s look at inflation expectations before, during rumors, and after the announcement (today…) buffered around the reports of US Fed Quantitative Easing.