The first priority for repairing the economy, or at least for stopping the bleeding is returning prices to something approximating equilibrium. There’s still more work to do, as suggested in the inflation forecast embedded in the spread between the nominal and inflation-indexed 10-year Treasuries.
As our chart below reminds, the market is far from convinced that the deflationary risk has passed. It’s open to the idea…maybe. But not convincingly, at least not yet.
As of last night’s close, the Treasury market is forecasting inflation of just under 1% for the decade ahead. That’s higher than the near-zero inflation expected at last year’s close and into early January, and so by that meager standard the outlook has improved. But relative to a normal state of affairs, the trend of late suggests there are worries anew that pricing pressure is set for another burst of deflationary wind.