Inflation Hysteria: A Rise For Nothing?

It confounds one to hear many an intelligent individual getting caught up in the current growth and inflation narrative, and obviously becoming inebriated on the MSM Kool-Aid...

"There is nothing in the economic data or our market indicators that supports the improving growth narrative. The aftereffects of the hurricanes are now fading, and absent a surge from somewhere else, I would expect our indicators to confirm a slowing." - Joe Calhoun

Succinct and indeed, the head fake is over, but many of the hook in mouth have swallowed hook, line and sinker. This weeks FOMC presentation might indicate how punch drunk some are.

"The eventual violent and ugly end to the so-called bond bull market will be a welcome and wonderful change when it does finally happen. It will mean that the (global) economy has finally pulled off a real recovery,  a distinct and obvious change from the last ten years or so during which this no-growth situation that has been called a recovery anyway. The definitive notion for that switch will be as inarguable and unqualified acceleration that shows up in a broad set of economic indications - starting with inflation."  Jeffrey P. Snider

Cogent, and as we already know from the obvious and not drinking the inflation cult kool-aid, factors other than real wage based inflation (twin deficits, weak dollar policy) are driving the increased cost of loan funds.

"What's been going on with eurodollar futures at the closer maturities is traders increasing their probability forecasts for Janet Yellen now Jerome Powell's Fed using the recent inflation hysteria to get a little higher in those money substitutes. It works out to increasing future 3-month LIBOR (X), while still respecting the long end of the UST curve's judgment (Y) that the economic fundamentals don't justify the hysteria, the policy, or the economy. That's why the eurodollar curve remains so flat." 

"The 3% ceiling is merely the eurodollar and bond market agreeing that nothing has changed overall. No matter the inflation hysteria of the past few months or half year, under the hurricanes' economic boost, all that has done for at least the eurodollar futures market is shift the probability not of inflation but that the Fed won't be stopped in hiking rates until a little further into the future. What will eventually stop them?"

Observant, Mr. ED or the EuroDollar market is telling one everything they need to know about unjustified hysteria, a poor economy, and with the Q4 2017 transitory hurricane head fake over, more of the norm. In the meantime, or at least for this weeks FOMC meeting cue the Fed and Official Rise...



Recommended reading: Inflation Hysteria(s); New Normal Continues; The X's And Y's Of Jerome Powell And The Long End, As Calculated By Eurodollar Futures