Why I remain on Team Transitory

That is the topic of my latest Bloomberg column, here is one excerpt:

The case for Team Transitory is not about whether the next pending inflation numbers will come in high or low. Instead it consists of the following two propositions:

  • The Federal Reserve can control the rate of price inflation.
  • The Federal Reserve does not want inflation to be very high.


Perhaps most important, there is the market’s perspective — and the market expects the Fed to bring down inflation rates. As I write, the 10-year Treasury yield is 1.64%. That yield has been rising, but it hardly seems to predict hyperinflation, or even 5% inflation for the next 10 years. The most negative piece of evidence so far is from the TIPS market, which is predicting inflation of about 3% over the next five years.

You might be wondering whether “the market” understands inflation and the Fed. Well, investors are obsessed with the Fed and study it closely. When I encounter Team Transitory skeptics, I ask them: “What is it that you understand about the Fed that the broader market does not?” I have yet to receive a compelling answer.

As an add-on note, properly interpreted those TIPS data probably are suggesting expected inflation rates of less than three percent, perhaps even closer to two percent looking forward.


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