Feb 4, 2021 - Economy & Business

Inflation expectations are highest since 2013

Data: Federal Reserve Bank of St. Louis; Chart: Axios Visuals
Data: Federal Reserve Bank of St. Louis; Chart: Axios Visuals

U.S. inflation expectations continue to rise, as the 5-year breakeven rate hit its highest in nearly eight years on Wednesday.

What's happening: Inflation expectations are climbing at a torrid pace thanks largely to massive lending by the Fed and big government stimulus programs, with both expected to continue at a sizable pace for some time.

  • The 10-year breakeven rate and 30-year breakeven rate, which measure expectations of inflation over those time periods, also rose to fresh highs.

ICYMI: The University of Michigan's January consumer sentiment index fell to 79.0, down from its average of 81.5 in 2020, and well below the average of 97.0 from 2017 to 2019.

  • However, one-year-ahead inflation expectations ticked up to 3% from 2.5% in December, while 5- and 10-year inflation expectations rose to 2.7%.

Flashback: "Right now everybody thinks we’re going to get reflation — that’s real growth going forward," Jim Bianco, president of Bianco Research, said on the latest Voices of Wall Street podcast last month.

  • "If that morphs itself into inflation that could be [a problem] for financial markets throughout the second half of the year."
  • "If we get to 2.6% or 2.7% on the core [inflation] number that’s the highest level we would have in 30 years," Bianco noted.
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