Traders are placing substantial bets on prolonged and intensified inflation in the United States, raising concerns about potential economic turmoil in the coming years. Breakeven rates on 2-year notes have surged to 2.75%, reaching the highest level in almost a year. One-year breakevens are also peaking, marking the highest levels since 2022, at nearly 4%.
The data further underlines the persistence of inflation, with Consumer Price Index (CPI), Producer Price Index (PPI), and anticipated Personal Consumption Expenditures (PCE) releases showing remarkable stickiness. The 3-month and 6-month annualized core PCE metrics are expected to spike to 2.4% and 2.6% on Thursday, surpassing the Federal Reserve’s 2% long-term target. More concerning is the 5-year inflation expectation, hovering around 3%.
The rising inflationary pressure is raising red flags, and market behavior suggests a shift in sentiment. The market is now pricing in fewer rate cuts than the Federal Reserve’s December projections, indicating growing apprehension. If the Fed refrains from cutting rates, the fear is that stock prices may decline as liquidity falters.
Jamie Dimon, CEO of JPMorgan Chase, remains cautious, expressing skepticism about the positive economic news emerging from the U.S. He suggests that the seemingly good news might be a precursor to an impending recession. This sentiment adds to the growing unease among market participants, hinting at potential challenges ahead.
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Traders are betting on substantially stickier inflation in the US for the next few years. Breakeven rates on 2-year notes are current at 2.75%, the highest level in almost a year. pic.twitter.com/Qj7fLAbBqI
— Lisa Abramowicz (@lisaabramowicz1) February 28, 2024
Indeed! Highest since 2022, at almost 4%: pic.twitter.com/KPGK2dlTwz
— Lisa Abramowicz (@lisaabramowicz1) February 28, 2024
Also, the data has been showing a lot of stickiness in both CPI, PPI which will translate to PCE release on Thursday
The 3-month and 6-month annualized core PCE metrics are expected to jump to 2.4% and 2.6% on Thursday above the Fed's 2% long-term targett.co/fI5fOBGYx5
— Global Markets Investor (@GlobalMktObserv) February 28, 2024
Show me a time period when cyclical data improve, and cyclical inflation pressures don't? Thus, how would a soft landing look to overly rate-sensitive equity markets? How many investors now follow "prices paid" that weren't even aware of it before 2022? #Macro pic.twitter.com/tGLQXGi4zg
— Kantro (@MichaelKantro) February 28, 2024
"For the first time this year, the market [red] is now pricing in fewer rate cuts than the Fed’s December SEP [blue]."@biancoresearch pic.twitter.com/ih5qz5LBtF
— Daily Chartbook (@dailychartbook) February 28, 2024
fortune.com/2024/02/27/jamie-dimon-jpmorgan-chase-american-economy-crash-1972/