Deflationary Forces are Picking Up Again in the U.S. Economy, Look at the PCE, CPI, Money Velocity, ISM Manufacturing PMI, 5-Year Breakeven Rate [CHARTS]

It's interesting that Treasury yields are rising on the belief that the Fed will taper off QE later this year, because it appears that deflationary forces are picking up again in the U.S economy. The velocity of money (M2 velocity), year-over-year CPI and PCE inflation rates, inflation expectations via breakeven rates, and even the ISM Manufacturing PMI have all been trending down (see charts below). The market and gold are selling off as real rates rise and expectations for inflation and QE purchases pull back. It just seems like a weird combination to me, unless economic growth spikes right now.

From Jon Hilsenrath's article in the Wall Street Journal on June 7, 2013:

"Fed on Track to Ease Up on Bond Buying Later This Year

Federal Reserve officials are likely to signal at their June policy meeting that they're on track to begin pulling back their $85-billion-a-month bond-buying program later this year, as long as the economy doesn't disappoint."

Money Velocity (M2 Velocity)

PCE Percent Change Year Over Year

Core PCE Percent Change Year Over Year

CPI Percent Change Year Over Year

CPI (Excluding Food and Energy) Percent Change Year Over Year

GDP Percent Change Year Over Year

ISM Manufacturing: PMI Composite Index

5-Year Breakeven Rate (5-Year Treasury Nominal Yield - 5-Year TIPS Real Yield) source

5-Year Treasury Bond Nominal Yield  (Red) vs. 5-Year TIPS Real Yield (Blue)

The 10-Year TIPS Real Yield just went positive.

Here's the TIP ETF (source:

More articles to read:

TIPS Are The Pits As Yields Rise But Inflation Doesn’t (Barron's)
TIPS yield turns positive on 10-year note for first time since 2012 (MarketWatch)
Inflation Shield Loses Its Appeal (WSJ)
US Government Forced to Pay Positive Real Rates on Debt (CNBC)
Time for Tapering: What QE Has Done, and Why It’s Time for the Fed to Stop (CFA Institute)

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