Created by: Sam Tenney
- The Federal Reserve “financial stability” biannual report for 2021 outlines markets as likely overvalued compared to cash flows, and notes a huge increase in housing prices since earlier in the year however does not see any excessive leverage in the housing sector. The market remains vulnerable to significant declines if investor sentiment deteriorates, the Fed has noted.
- The 10-year breakeven rate, the rate of 10-year inflation protected bonds minus the 10-year constant treasury bond, has risen to a decade high, with the spread between these two assets reaching 2.73%. This signals intense predictions by the market for the rate of inflation over the next decade.
- JP Morgan believes the disconnect between the Fed beginning to taper, and the continued surge in Core Product Inflation (CPI), shows that not all inflation we are seeing may be transitory. This is compared to the Federal Reserve’s stance that current inflation is being caused by the continued reopening of world economies after Covid, and not necessarily due to the large amounts of stimulus injected into the economy.
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