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As the 10-year and 30-year treasuries hit 1.60% & 2.29%, respectively, investors are concerned whether these changes are due to inflation expectations under the assumption that rapid economic recovery is imminent in the near future – even though all the leading economic recovery indices are still skeptical. In addition, Federal Reserve chair Jerome Powell also showed his skepticism in the recent senate hearing about the inflation expectations, saying, “We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect.”
In this article, we will take a closer look at the recent surge in treasury yields and how the Fed is likely to mitigate inflation fears.
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However, it’s nowhere close to a point that will lead economists to believe that inflation sentiment is justified. Recent data published by the Department of Labor indicated that Americans seeking unemployment fell by 111,000 from prior week to a seasonally adjusted 730,000. Although this is great news when looking at an economic recovery, these numbers are still very high. Furthermore, as the economy emerges from the COVID-19 lag, the majority of the employment sectors are heavily reliant on the dissemination and administration of the COVID-19 vaccine; as more and more people are vaccinated, it will definitely improve the unemployment outlook for Americans.
Furthermore, the additional funding for local and state governments will alleviate the liquidity strains caused by the decrease in their usual revenue sources. The federal government’s intervention in these times goes to show that inflation concerns are not on their radar.
It’s also important to note that the Federal Open Market Committee will likely stick with their earlier plans to keep interest rates historically low, as Fed Chair Jerome Powell isn’t seeing inflation as a concern in his outlook of the American economy, and hold rates near zero until the economy has weathered the effects of the coronavirus.
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Disclaimer: The opinions and statements expressed in this article are for informational purposes only and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgement of the author(s) at the time of publication and are subject to change without notice. Information has been derived from sources deemed to be reliable, the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professionals and advisers prior to making any investment decisions.