Bond prices show that the average inflation rate could decrease to 2.14% by June 2024—ending the ongoing crisis.
Key Details
- The five-year breakeven rate for bonds has decreased from 3.56% last spring to 2.14% on Thursday, Axios reports.
- While it is not a perfect indicator, the statistic suggests that the Federal Reserve’s tightening policies are having the desired effect, cooling inflation projections to normal levels of around 2%.
- The May Consumer Price Index (CPI) is scheduled to be announced by the Bureau of Labor Statistics on Tuesday, June 13.
- The Fed is expected to make its next announcement on Wednesday, June 14, after its June meeting. It is not expected to announce another interest rate hike.
Why It’s Important
The statistic is good news for the market, as fears of volatility and recession have shaken the market for over a year. Runaway inflation peaked in June 2022 at 9.1%, but it has descended every month since to a more manageable rate of 4.93%.
With the bond market cooling off, it appears the Fed’s actions have worked. As we previously reported, the Fed increased interest rates ten times between March 2022 and May 2023, increasing the rates from near zero to a range of 5% to 5.25%.
The rapid increase created fears of an imminent recession and unintentionally sparked three of the largest bank collapses in U.S. history over the past three months. The Fed is reading the room and realizing that things are breaking. Its most recent hike on May 3 was one of its smallest yet, and it is believed that the Fed will cease further hikes to let the market settle and react.
The economy is currently experiencing mixed signals as to its imminent future. The rapid decline in Lumber prices would indicate that severe economic troubles are expected within the next few months, but inflation is decreasing rapidly. A rapid decline in housing price increases could see the rate decrease further. The June jobs report came in hot and rallied the stock market, while high consumer spending keeps prices high.
