Market not worried about inflation outbreak.
The Federal Reserve expects to raise interest rates one more time this year and three more times in 2018 after the expected tightening on Wednesday, according to the “dot plot” published in March.
The bond market has reacted with something akin to a teenage eye roll, pricing in only one-and-a-half hikes through the end of 2018.
What’s behind the dispute? It boils down to disagreement about the outlook for inflation, said Tom Simons, a senior economist for Jefferies.
The Fed believes inflation will bounce back but the market sees a lower trajectory for the foreseeable future, Simons said.
“It’s not a whole lot more complicated than that,” he said.
After starting the year running at a 1.8% annual rate, the core rate of the personal consumption expenditure index has softened to a 1.5% rate in April.
Source: Bloomberg Pro Terminal
Jr Trader Ivan Ivanov
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