Thursday, September 22, 2005 - Inflation Expectations Trend Higher

  • - Inflation Expectations Trend Higher

    A good proxy for future inflation is the spread between the 10 year Treasury and the 10 year Tip rate. The FOMC was surely aware of the rising spread of the last couple of months when they raised short rates today.

    Investors should always keep in mind that stocks do well during periods of moderate to low inflation. The FOMC is doing a good job of tapping the economic brakes.

    Folks are wondering when the stock market is going to break out to new highs. The answer is when it becomes clear that the FOMC has made a smooth transition. During the recovery, the FOMC had to push the economy hard to get it over the top of the hill. Now the FOMC must apply the brakes hard enough to make navigating the sharpe curves possible. The ride for the next four or five years will be a lot of fun if we know the driver has this vehicle traveling at a safe speed.

    One can quickly plot the 10 year treasury versus the 10 years tips at A subscription is required for advanced features. Other bloggers addressing the interest rate issue:

    finance market;
    Young Miser:
    Best Cash Cow