Friday, February 17, 2012

Cleveland Federal Reserve: Ten-Year Expected Inflation is Only 1.34%, the Lowest in 30 Years

"The Federal Reserve Bank of Cleveland reported today that its latest estimate of 10-year expected inflation is 1.34 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium."

42 Comments:

At 2/17/2012 4:56 PM, Blogger W.C. Varones said...

If the prices of gasoline, food, and utilities rise only 1.34% annually over the next 10 years, I will eat my hat.

But Bernanke doesn't care about wage workers or the elderly on fixed incomes as long as flat screens keep getting cheaper.

 
At 2/17/2012 5:03 PM, Blogger morganovich said...

extrapolating price expectations from a heavily manipulated bond market is impossible.

real rates are deeply negative right now.

that is not a sign that deflation is expected this year.

it's a sign that the market has been twist and zirped out of line with the economy.

 
At 2/17/2012 5:16 PM, Blogger morganovich said...

eg:

the 2 year yield right now is 0.298%.

are we to infer from that that expected inflation or risk premiums are negative?

looking at TIPS spread is similarly meaningless as they have the same problem.

no sane buyer is picking up tips right now unlevered any more than they would buy an unlevered 2 year.

to get the real inflation expectation, you need to know the leverage.

it may look like 1%, but at 5:1 leverage, it's really 5%, at 10:1, well...

 
At 2/17/2012 5:59 PM, Blogger morganovich said...

also:

Feb 17 (Reuters) - The breakeven rate on U.S. 10-year Treasury Inflation-Protected Securities on Friday moved to the highest level since mid-August after data showing U.S. consumer prices rose the most in four months in January.

The Labor Department on Friday said its Consumer Price Index rose 0.2 percent last month, which was just below analysts' expectations for a 0.3 percent increase.

In the bond market, the 10-year breakeven rate , or the gap between 10-year TIPS yield and 10-year Treasury note's yield, moved up to 2.27 percent, over 3 basis points higher than late Thursday, according to Tradeweb. The breakeven rate was the largest since Aug. 11.

and that's unlevered yield.

the cleveland fed seems to be a bit off the market with their call.

 
At 2/17/2012 6:20 PM, Blogger Larry G said...

oh man... Obama's getting to the point of a LOCK on a 2nd term!

Warning. Warning. Will Rodgers!

pray for a disaster!

is this trolling?

;-)

 
At 2/17/2012 6:25 PM, Blogger Buddy R Pacifico said...

From the Cleveland Fed:

" In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade."

Less than 2% is thought of as almost disinflation by many.

So, what will the speculators do? Start looking for inflation hedges, because the general public(I'm a member of the "copper" in good standing) is often wrong indentifying econ trends.

 
At 2/17/2012 7:30 PM, Blogger Benjamin said...

Inflation is dead.

The risk is that we do a Japan, and in fact we are already doing a Japan in many ways.

The hysterical Chicken Inflation Littles have been wrong for years on this score, led by Richard Fisher, Dallas Fed Prezzy.

Deflation is a menace to American prosperity.

China and India are expanding, and not daintily fretting about inflation. You see, they want growth.

 
At 2/17/2012 8:50 PM, Blogger kmg said...

If the prices of gasoline, food, and utilities rise only 1.34% annually over the next 10 years, I will eat my hat.

Why select the few things that may rise the most, while ignoring the items that will fall over the same time?

In general, the government could print all the money they want if they also subsidize just two things, gasoline and milk. Keep those two things cheap and most people don't care about the rest.

Plus, anyone with a mortgaged home should be praying to god for inflation, and go on hunger strikes to demand printing. A mortgaged home in a deflationary environment will ruin you.

 
At 2/17/2012 8:51 PM, Blogger kmg said...

Inflation nuts are just former peak oil nuts who now are looking for something else to obsess over.

 
At 2/18/2012 12:03 AM, Blogger jcarroll1948 said...

Sorry, but I don't trust US gov't statistics any more than I trust Chinese gov't statistics. Through the finagling the gov't has done to the inflation indicator over the last 30 years, they can make the CPI anything they want it to be.

 
At 2/18/2012 4:12 AM, Blogger PeakTrader said...

The Fed has been trying to create inflation, at the general price level, because when prices rise, additional profits are made, which ramps-up production and attracts more producers, to employ idle resources, e.g. labor and capital.

We've seen this with higher oil prices from Peak Oil.

Of course, the Administration and Congress have their own ways to create inflation, e.g. through excessive regulation of selected industries, which create scarcity.

 
At 2/18/2012 10:06 AM, Blogger VangelV said...

The Federal Reserve Bank of Cleveland reported today that its latest estimate of 10-year expected inflation is 1.34 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

Let us put this in perspective.

Federal Reserve Chairman Ben Bernanke and other top officials of the U.S. central bank missed the nation's oncoming housing crash, believing as late as December 2006 that the market was stabilizing, according to transcripts of policy meetings released on Thursday.

"The discussion by the members of the FOMC, the Fed board members in Washington and 12 regional bank presidents, gave no indication that any of them foresaw the devastating impact that the collapse of the housing bubble would have. The country fell into a deep recession and severe financial crisis that led to the loss of more than 8 million jobs."

Given the Fed's inability to see the damage that it was causing before why should we believe what the Fed thinks today? And why aren't we quoting the beliefs and analysis from the people who actually got right what the Fed got wrong? What do Murphy, Faber, Schiff, Rogers, Sprott, etc., think will happen with inflation as opposed to the Cleveland Fed?

 
At 2/18/2012 10:10 AM, Blogger VangelV said...

Inflation nuts are just former peak oil nuts who now are looking for something else to obsess over.

Actually, conventional production peaked in 2005. Hundreds of billions in new investment has failed to get production above that level. And the 'inflation nuts' are clearly correct. The USD has lost more than 85% of its purchasing power since it was taken off the gold standard.

 
At 2/18/2012 11:12 AM, Blogger Larry G said...

FYI - Ben Bernanke Assumed office
February 1, 2006 preceded by Alan Greenspan

 
At 2/18/2012 11:52 AM, Blogger Htowner said...

Really? The figures are manipulated just like the unemployment numbers. Come on Mark. Take an average family-ask them if inflation is as low as the Gov says. Sad

 
At 2/18/2012 1:45 PM, Blogger PeakTrader said...

VangelV, yes, "let us put this in perspective."

The economy is not static. What was said by the Fed in Dec '06 would not necessarily apply in Dec '07.

The U.S. was on a path to a mild recession, until Lehman failed in Sep '08 (thanks to the easing cycle that began in late '07 and the Bush tax cut in early '08, which gave the Fed time to catch-up to achieve a "soft-landing").

Monetary policy didn't create the "damage" (except monetary policy was restrictive in late '07, after the Fed Funds Rate was raised from 1% in 2004 to 5 1/4% in 2006, along with contractionary fiscal policy, which caused the downturn initially).

The damage was caused by a lack of regulation, or an easing of lending standards, which should've been tightened instead, by politicians like Barney Frank, Chris Dodd, and others.

And, the doom and gloomers, like Murphy, Faber, Schiff, Rogers, Sprott, etc., all they prove is a broken clock is right twice a day.

 
At 2/18/2012 1:50 PM, Blogger PeakTrader said...

Htowner, my monthly income has increased roughly 50% over the past few years, and yet my monthly payments, e.g. for housing, food, clothing, insurance, auto, etc., are roughly the same, except I pay more for gasoline.

Of course, prices go up and down.

 
At 2/18/2012 4:51 PM, Blogger geoih said...

Quote from Benjamin: "Inflation is dead."

You mean the way recessions were dead, or the way housing prices will never fall.

Perhaps next you can tell us about the demise of time and gravity. Or perhaps you should check the prices of food, oil, and gold. Maybe you should look at all the prices on the stock market and explain how an economy with massive and persistent unemployment, and very little growth (even counting the money artificially pumped in through the state), are somehow still at record highs.

Inflation is all around you, no matter how you might bury your head in indices concocted by the state to hide it.

 
At 2/18/2012 5:02 PM, Blogger geoih said...

Quote from PeakTrader: "Monetary policy didn't create the "damage" ..." And: :The damage was caused by a lack of regulation, ..."

Monetary policy has created all the damage for the last 100 years. You're honestly going to state that we don't have enough regulation? We live in the most regulated society in history.

At some point the continued support for failed measures is simply farcical. It's like watching medieval physicians bleeding their patients and not understanding why they aren't getting better.

Your premises are flawed. They are the opposite of correct. How many more years of failure will it take for you to accept that it isn't working?

 
At 2/18/2012 8:19 PM, Blogger Ron H. said...

Peak: "Htowner, my monthly income has increased roughly 50% over the past few years, and yet my monthly payments, e.g. for housing, food, clothing, insurance, auto, etc., are roughly the same, except I pay more for gasoline."

Well, there's your own personal example of inflation higher than projections.

If that income is in the form of salary, do you think you produce 50% more than you did a few years ago?

 
At 2/18/2012 9:05 PM, Blogger PeakTrader said...

Geoih, people like you believe economic boom/bust cycles (not to be confused with asset boom/bust cycles) are good, and all regulations are bad.

 
At 2/18/2012 9:18 PM, Blogger PeakTrader said...

Ron, I know I perform my work better and faster.

It seems, over the past two or three years, many workers got only cost of living raises, i.e. less than 3% a year, because of the economy.

Nominal growth (real growth and inflation) has been low.

 
At 2/18/2012 10:10 PM, Blogger Ron H. said...

Peak: "Ron, I know I perform my work better and faster."

But, 50% better and faster?

"It seems, over the past two or three years, many workers got only cost of living raises, i.e. less than 3% a year, because of the economy."

COLAs are a terrible idea. If the Fed targets 3% inflation and everyone gets a 3% COLA, the whole exercise is meaningless, except to savers, who lose.

Workers only think they need COLAs because of Fed policy in the first place. Otherwise there would be no increases in cost of living, in fact probably the opposite.

 
At 2/19/2012 3:22 PM, Blogger bart said...

PTrader sez: And, the doom and gloomers, like Murphy, Faber, Schiff, Rogers, Sprott, etc., all they prove is a broken clock is right twice a day.


Yep - every day for about a decade now they've been right, especially Faber & Rogers.


I notice you still can't comment on any of the real inflation issues, or how seniors who have been on SS for a while lose huge amounts of purchasing power - an average of at least 5%/year for the most recent decade... and run away from the point that medical is about 17% of the economy but only 6% of the CPI.

 
At 2/19/2012 3:24 PM, Blogger bart said...

"Cleveland Federal Reserve: Ten-Year Expected Inflation is Only 1.34%, the Lowest in 30 Years"

They probably thought it would be 2% in 2002 also.


I think I'll look around for my Dow 100,000 with no inflation hat...

 
At 2/19/2012 4:19 PM, Blogger geoih said...

Quote from PeakTrader: "... people like you believe economic boom/bust cycles ... are good, and all regulations are bad."

People like me believe monetary boom/bust cycles that are bad (and the real cause of all systemic boom/bust cycles), and regulations created through the political process are inherently corrupt (including monetary policies).

 
At 2/19/2012 4:21 PM, Blogger morganovich said...

"It seems, over the past two or three years, many workers got only cost of living raises, i.e. less than 3% a year, because of the economy."

actually, over the last few years, median income has dropped.

most workers are getting paid less, not getting COLA.

"The annual median wage fell in 2010 for the second year in a row to $26,364, a 1.2 percent drop from 2009, and the lowest level since 1999, according to David Cay Johnston at Reuters"

what is it your example is supposed to demonstrate?

it seems meaningless and dubious.

if you are paying the same for food, then you must have some magic store whose prices don't rise, because the rest of us are paying a ton more and every food price index i know of is soaring.

 
At 2/19/2012 5:49 PM, Blogger PeakTrader said...

Geoih, just because you say something, that's not supported by any sound economic theory and the data, doesn't make it true.

 
At 2/19/2012 5:49 PM, Blogger PeakTrader said...

Morganovich, more unemployment can cause lower median income.

I just bought some excellent bargains at the store today.

You need to stop shopping at 7-11.

 
At 2/19/2012 6:00 PM, Blogger PeakTrader said...

Bart, sure, the doom and gloomers been right since 1982.

The federal government has been driving-up health care costs for decades. ObamaCare will be the final stage to boost costs. Then, the federal government can finally take over the entire industry.

Anyway, I've been paying the same for health care, through my employer, each month for years.

 
At 2/19/2012 6:53 PM, Blogger PeakTrader said...

American living standards and working standards are much higher today than in the 1970s.

There's even much less pollution today than in the 1970s.

The U.S. economy benefited more than what was reflected in real GDP from 1982-07, including through outsourcing, offshoring, innovation, and labor productivity.

U.S. consumption and net wealth (assets minus liabilities) are both way up.

 
At 2/19/2012 7:40 PM, Blogger Ron H. said...

Peak: "Morganovich, more unemployment can cause lower median income."

Only if the jobs lost are higher paying. I suspect unemployment has been higher among low paid workers than high paid ones. Is that not the case?

 
At 2/19/2012 7:58 PM, Blogger PeakTrader said...

Ron, millions of Americans lost jobs, while population growth continued.

McDonalds was one of the few firms hiring last year.

 
At 2/19/2012 7:59 PM, Blogger PeakTrader said...

And what about the overpaid government workers?

 
At 2/19/2012 10:23 PM, Blogger Ron H. said...

Peak: "Ron, millions of Americans lost jobs, while population growth continued."

Isn't median income calculated on the basis of those with incomes? I assume this $26k number is individual income, not household or per capita.

For the median paycheck to shrink, there needs to be fewer income earners above the current medium, or more income earners below the current medium.

 
At 2/20/2012 1:58 AM, Blogger PeakTrader said...

Ron, if you earned $1 in a year, that's income.

Unemployment benefits is income.

 
At 2/21/2012 11:11 AM, Blogger VangelV said...

Geoih, just because you say something, that's not supported by any sound economic theory and the data, doesn't make it true.

You try and keep this in mind because most of the things that you write are not supported by sound economic theory or any empirical evidence.

Geoih's position is sound. It is obvious that monetary and credit boom/bust cycles are bad and that these cycles are the cause of the 'systemic boom/bust cycles'. It also seems reasonable to argue that regulations that are created through the political process are not only corrupt but that they have plenty of unintended consequences. Your ignorance comes from your lack of understanding about the effects of money and credit and a belief in interventionism. Because yours is a faith based position that ignores theory and logic you keep ignoring the lessons of history and can spin any narrative to support your position without ever dealing with the logic and facts.

 
At 2/21/2012 1:16 PM, Blogger bart said...

Bart, sure, the doom and gloomers been right since 1982.

When I snap my fingers, you will come out of your fantasy. *snap*



The federal government has been driving-up health care costs for decades. ObamaCare will be the final stage to boost costs. Then, the federal government can finally take over the entire industry.

Wow - you have it really bad, and should get professional help.


Anyway, I've been paying the same for health care, through my employer, each month for years.

"Any sufficiently advanced technology is indistinguishable from magic."

i.e., another great fantasy or perhaps drug based hallucination.

You should just look up medical costs in the raw BLS data. Better yet, talk to someone who has been on SS for a few years (with the [wonderful lying] CPI-W adjustments) and see what has happened to their real cost and standard of living.

I'm not worried though, facts like that are anathema to you.

 
At 2/21/2012 1:34 PM, Blogger VangelV said...

Bart, sure, the doom and gloomers been right since 1982.

I think that you are missing the point. First, there are always 'doom and gloom' advocates pushing some theory or another. It is an error to believe them to be monolithic and treat them the same.

What you need is to look each argument on its own and to actually understand what it means. For example, many people predicted monetary disaster after Nixon took the USD from the gold standard. They were not vindicated by the massive inflation of the 1970s because they did not make the argument that the collapse would be imminent. The argument was that the use of a fiat money system would cause the growth of government and would transfer purchasing power from savers and those on fixed income to the banking system and privileged players. What has to happen is obvious but when it has to happen isn't because there are steps that can be taken to kick the can down the road and push out the consequences further out. This is why fundamentals based investing using some macro themes only works for those that are very patient and have the time to be right because they do not use leverage. It is also why some people who understand the fundamentals get tired of waiting and use TA to speculate on the shorter term moves.

The point is that the theory that is used by many of the skeptics is very sound. We do not get to avoid the consequences just because the can gets kicked down the road or some politician or another manages to fiddle with material information. If you want to survive you better stop attacking people who have been right and figure out why they could see what was going on while most of the rest were blind to reality.

 
At 2/22/2012 11:42 AM, Blogger bart said...

PT, just because you say something, that's not supported by any sound economic theory and the data and real world facts, doesn't make it true.... and then some.

*yawn*

 
At 2/23/2012 9:57 AM, Blogger bart said...


The point is that the theory that is used by many of the skeptics is very sound. We do not get to avoid the consequences just because the can gets kicked down the road or some politician or another manages to fiddle with material information. If you want to survive you better stop attacking people who have been right and figure out why they could see what was going on while most of the rest were blind to reality.



+1


You go, V.

 
At 2/27/2012 8:42 AM, Blogger VangelV said...

The economy is not static. What was said by the Fed in Dec '06 would not necessarily apply in Dec '07.

Actually, what was said by the fed in Dec '06 was not even true in Dec '06. That is my point. The Fed has no clue what is really going on and is easily misled by its own bias. If you read the minutes you find very quickly that the Fed governors are as ignorant as the financial media.

The U.S. was on a path to a mild recession, until Lehman failed in Sep '08 (thanks to the easing cycle that began in late '07 and the Bush tax cut in early '08, which gave the Fed time to catch-up to achieve a "soft-landing").

No. The US was in a huge bubble thanks to Fed easing and government meddling. A mild recession could not correct the malinvestments in the housing sector and even the huge contraction has failed to liquidate them so far. As long as government gets in the way and prevents the government from clearing away the dead wood we will not have the basis for a sustainable recovery.

Monetary policy didn't create the "damage" (except monetary policy was restrictive in late '07, after the Fed Funds Rate was raised from 1% in 2004 to 5 1/4% in 2006, along with contractionary fiscal policy, which caused the downturn initially).

Totally untrue. Loose monetary policies designed to minimise the damage from the popping of the NASDAQ bubble simply created a bubble in housing just as Krugman and the Wall Street bankers were hoping. Nobody wanted a correction in 2001 so the Fed gave them easing.

The damage was caused by a lack of regulation, or an easing of lending standards, which should've been tightened instead, by politicians like Barney Frank, Chris Dodd, and others.

Nonsense. There were more than 120 regulatory agencies. Would 130 done better?

And, the doom and gloomers, like Murphy, Faber, Schiff, Rogers, Sprott, etc., all they prove is a broken clock is right twice a day.

Actually, they proved to be consistently right.

 

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