An interesting piece from Bloomberg in which they discuss five ways traders have been telling the Fed that they should postpone their tightening strategy:
1. Inflation expectations have fallen close to where they were right before the Fed embarked on QE2
2. U.S. corporate borrowing costs are skyrocketing, especially for the riskiest debtors … capital spending at these companies is certainly not going to be what it has been
3. Bloodbath in commodity prices … if it continues, that’ll further drag down those inflation expectations and the need for the Fed to tighten monetary policy
4. Market stress is on the rise… a worsening selloff may not be the best time to raise interest rates
5. Traders disagree with the Fed’s forecast that benchmark interest rates will approach 4 percent in the longer run. The bond market is pricing in shorter-term rates of about 2.66 percent, based on a one-year interest-rate swap traded five years forward — see chart. The market is telling U.S. central bankers they should reconsider their plans.
The article is ungated and raises good point
