The TIPS market has told an interesting story the past month. The implied inflation rate has collapsed. As of Monday morning, the market is pricing inflation at 1.94%%. A few month ago it was 2.5%.
The market is saying that when QE is in full force, with no end in sight, inflation expectations are high. When there is even a scent of QE being cut back, inflation expectations fall. The markets are therefore acting ‘rationally’.
That the market is repricing inflation lower must be killing Bernanke.TIP this - Bruce Krasting