US economy

US inflation expectations fall below 2 per cent


A widely tracked measure of US inflation expectations fell to its lowest level of 2018 on Tuesday, as fears over a slowdown in global growth intensified.

US 10-year inflation breakevens, a measure of inflation expectations derived from inflation protected government bonds, dropped to 1.98 per cent, dipping below the Federal Reserve’s important 2 per cent target.

The move came amid a global sell-off across stocks and bonds, led by declines for technology companies. The 10-year Treasury yield, which moves inversely to price, nudged closer to falling below 3 per cent for the first time since mid-September, trading slightly above the threshold on Tuesday morning.

But 10-year real yields, which account for inflation, nudged higher, reinforcing investor concerns that moves were driven by fears over global growth, rather than changes to the Fed’s plans to raise interest rates. Further pressure came as oil prices continued to decline, with energy an important input into inflation measures.

“It is ominous,” said Jonathan Hill, an interest rate strategist at BMO Capital Markets. “It is consistent with the global growth slowing trade. Investors are concerned we may be approaching the end of this economic cycle.”



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