Morning Brief Monday August 27, 2012

Good Morning. This weekend I spent some time studying inflation expectations also known as break even points. By simply taking Treasury TIPS which are inflation adjusted (real yields) and subtracting Treasury nominal yields (not inflation adjusted) you get inflation expectations. And it is pretty clear why the Fed will not launch QE3 in September.In June there was a case but today, there is clearly not.

The Fed has two mandates, managing inflation and maximizing labor. If you go back to the launch of QE1 and all subsequent discussions, the Fed always mentions the threat of deflation.They live in fear of a Japanese style deflationary spiral that once in place is near impossible to control. Imagine if you believe prices today will be lower tomorrow. You will not buy today. In other words demand falls and the economy falters.

So the Fed has fought deflation with the famed “printing press.” The chart below shows just why the Fed launched QE2 in the summer of 2010.

You need to be logged in to see this part of the content. Please Login to access.

Share
If you enjoyed this article, please consider sharing it!
Icon Icon Icon

Related Posts

Popular Posts

Sorry but you do not have access to view the comments

Archived Posts By Date

Archived Posts By Subject

Disclaimer

Content
Opinions are those of the author(s),
and may contain errors and or omissions.
Warranties
No warranties, either written or,
expressed are implied by this content.
Investment Advice
Content does not constitute investment
advice. Author may not disclose
financial positions in securities.

Get In Touch

Company
Macro Story

Contact
Tony Pallotta

Email
Contact via email

Technical Support

This website is designed to support
all browsers. If you have a question
or find an error, please contact us.