inflation and the yield curve

[unblock]

today, the 30 yr. bond is at 4.45%, and the fed funds rate is 3.00%.

a +1.45% increase for going out 30 years seems pretty flat to me. this, in turn, seems to suggest rather low inflation expectations.

yet, there are many signs of emerging inflation, and this is the excuse given each time the fed hikes.

is the yield curve flat simply because the market trusts the fed to control any inflation before it becomes a problem? or is the market telling us that the fed is overdoing (8 hikes in a year so far) and will push us into a recession?

[whistle]

1. The U.S. economy is fixed and controlled much like casino...

...gambling, the odds always favor the house, in this case the White House of George W. Bush and his base of the ultra-rich and their cronies. We average middle class folk really aren't part of that club except when those in charge throw out the odd bone.

[On the Road]

2. I Agree -- 30-Year Interest Rates Seem Too Low

It's the same sort of effect as an asset bubble. Herd mentality. The more the market deviates from reality, the harder will be the correction.

Of course, there's a possibility that interest rates will come back down and stay there for 30 years. But the risk of that NOT happening is great enough to deserve a higher premium.

[unblock]

3. a recent story about the flattening yield curve:

i don't understand valliere's statement below, that 10-yr yields are low because people think the fed might abandon its hikes, and logn yields will rise when they realize that short yields will also rise more?

makes no sense to me.




http://money.cnn.com/2005/06/03/news/economy/yield_slowdown/index.htm

Is the Fed to blame?
Fed Chairman Alan Greenspan has called the low long-term rates in today's environment a "conundrum." Some economists say part of the problem with the narrowing yield spread is due to the Fed's insistence on raising rates more than is justified by current economic conditions.

"The conundrum is the Fed, and why the it keeps raising rates," said economist Robert Brusca of FAO Economics.

But Greg Valliere of Stanford Washington Research Group, said the central bank is right to keep raising rates due to concerns about issues such as rising labor costs, which could lead to more inflation down the road, and the risks posed by a possible housing bubble.

Valliere thinks 10-year Treasury yields will start rising as soon as investors become convinced the Fed is not as close to abandoning its policy of rate hikes as now commonly assumed.