Inflation Expectations Drop as Markets Bet on Fed's Ability to Cool Prices
-
Market-implied 10-year inflation expectations have fallen to around 2.16%, down from 2.5% in October, suggesting increased confidence that the Fed can control inflation over the long run.
-
The debate continues over whether inflation can be successfully contained or if it will remain sticky and reaccelerate.
-
Analysts who think inflation will keep falling believe consumer spending patterns that drove price gains will normalize post-pandemic.
-
The 10-year breakeven rate anchored around 2.5% for much of this cycle reflects market expectations that equilibrium inflation will settle around the Fed's 2% target.
-
Upcoming inflation reports like November's CPI on Tuesday will provide important updates on whether price gains are moderating towards the Fed’s 2% goal or remaining persistently high.