Fed’s patience tested by inflation

Sources: Bloomberg and Wells Fargo Investment Institute. Market’s 5-year/5-year forward inflation rate: monthly data from January 1, 2011 to September 30, 2021. PCE core deflator: monthly data from January 1, 2011 to August 31, 2021. PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100. The market’s 5-year/5-year forward inflation rate is a common measure that is used by central banks and dealers to look at the market’s future inflation expectations. Fed = Federal Reserve

Key Takeaways

  • Investors’ inflation expectations are still restrained, signaling that inflation’s recent spike could reverse soon.
  • Nonetheless, inflation’s latest rise points toward a less generous policy stance by the Federal Reserve in late 2021.