At the risk of sounding like a breakeven record…
I know I’ve been harping on this angle for awhile but the Fed can’t ignore this chart. Bullard was ready to hit the panic button when 5-year breakevens were at 1.50%, today they broke the 2011 low at 1.30% and are trading at 1.28% — that means the market is implying just 1.28% US inflation over the next five years.
That’s lower than when the Fed started QE2. Translation: There is no need for Yellen to hike rates.
US 5 year breakevens
The mother-of-all Christmas surprises would be if the Fed made a dovish shift at next week’s meeting. The squeeze on the dollar would make yesterday’s fall look like a blip.
