US inflation expectations drop to 11-week low

Amid the sustained fall in US Treasury yields, in contrast to the market’s inflation fears, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since February 25.

In doing so, the inflation gauge reversed the mid-week rebound from the lowest levels since early March by flashing a 2.59% figure by Thursday’s end of the North American trading session.

Given the market’s rush to risk-safety, the yields have been ignored of late, which n turn weighs on the inflation expectations despite reflation woes. However, the Fedspeak has been hawkish and maintains a view of more than two rate hikes in 2022, although the size of the rate hike being 75 bps is a question.

Hence, although the inflation expectations have recently refreshed multi-day low, the fears of tighter monetary policy and price pressure may remain elevated until the quote drops below the early 2022 levels.

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