Inflation Expectations Plunge by 2% in Four Months

The chart above shows the market-based 10-year TIPS-derived expected inflation from the Cleveland Fed, calculated from the difference between 10-year nominal treasury notes and 10-year treasury inflation-protected securities. On an adjusted basis (for an inflation-risk and liquidity premiums, see details here), inflation expectations fell to a six-year low of 1.44% yesterday, the lowest since September of 2002.

This is a huge drop in inflation expectations from 3.36% in June to only 1.44% today. Inflationary pressure is easing and deflating fast.

Comments

[Paul Killinger:]

"Deflating" is the key word there. I've always been a proponent of deflation, but I never imagined it could take place all in ONE MONTH.

Speaking of the other "D" word on everyone's mind, Depression, Milton Friedman was asked once what a central bank should do to avert one. Simple, he said, drop interest rates and print money like crazy. Judging by the HALF TRILLION in new notes they've sold so far this week, it appears the Fed was listening. Thank goodness!

2008 Oct 24 09:36 AM

[CLH:]

A lot of investors are holding depreciating gold. Well live and learn.

2008 Oct 24 11:04 AM

[alajac:]

A half trillion is just "spitting in the ocean".

2008 Oct 24 12:38 PM

[carey_jim:]

Looks like a "hair over the shoulders" bottom (or possibly top) to me.

2008 Oct 24 03:24 PM