Uncle Jay’s Band: Vanguard Sees US Inflation Rising With Gradual China Trade Tension Easing (Possible Rate Increase?)

With inflation expectations rising, will Uncle Jay’s Band intervene even more than they have at recent FOMC meetings?

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IF inflation rises, The Fed may be tempted to raise rates. But will it be enough to justify a rate increase at the December FOMC meeting?

(Bloomberg) — The bond market may be about to get confirmation of its rebounding inflation wagers, according to Vanguard Group Inc. strategist Anne Mathias.

The $5.6 trillion asset manager is among proponents of the view that market-based measures of inflation expectations will extend their climb from a three-year low.

Potential progress in U.S.-China trade negotiations has been a key contributor, along with the Federal Reserve’s signaling on Oct. 30 that it would need to see a significant pickup in inflation before lifting rates.

Five-year breakeven rates — a proxy for anticipated annual increases in consumer prices into 2024 — touched a four-month high of 1.64% last week, with nominal yields surging as well. Developments on the trade front aside, bond traders’ bearish shift may now hinge on inflation data to be released this week.

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Treasury Inflation Protected Securities (TIPS) have been on the rise in 2019 as inflation has been rising.

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And the interest rate volatility cube is lighting up!

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Of course, China could always pull a “Lucy” on the USA in the trade talks.

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What will Uncle Jay’s Band do?

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Get into the groove and let the good times roll!

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