The Treasury market’s implied inflation forecast continues to fade, dipping to 1.70% yesterday (Dec. 11) — close to a four-year low, based on the yield spread for the nominal 10-year Note less its inflation-indexed counterpart. The slide looks worrisome, but appearances can be deceptive at a time when US economic growth is holding steady if not accelerating. Indeed, while economic activity decelerates/stagnates elsewhere, the US trend is gaining momentum, or so yesterday’s retail sales data (and last week’s bullish payrolls update) suggest. Meantime, the bear market in energy may end up boosting US growth on the margins in the months ahead while putting pressure on inflation.
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