One glance at the reaction of financial markets and it was instantly obvious that the US August inflation numbers were not what the markets expected or wanted.– its biggest fall since June 2020 in the earliest days of the pandemic – and interest rates in the bond market shot up. The yield on 10-year bonds rose six basis points to 3.42 per cent and two-year Treasury note yields 19 basis points to 3.76 per cent. The two-year yields are now at their highest level since October 2007.
Its rents, food and healthcare costs are rising aggressively, along with wages that are increasing in a very tight labour market . It is the breadth of the increases as much as the overall rate that is disturbing. The Fed needs to get ahead of expectations and make a significant dent in consumer and investor confidence – and probably economic growth in the process – if it is to drive the inflation rate down. It is also probably going to have to keep raising rates faster and further than it might itself have envisaged.Louie Douvis
Controlled demolition!
Where those in the markets saw rates peaking either late this year or early next year around 4 per cent, it now looks likely that peak will occur well into next year and solidly above 4 per cent,