It’s also instructive to look at interest rates on “inflation-protected” or “index” bonds, which are telling us two things. First, markets are practically begging governments to borrow and spend, say on infrastructure; interest rates on index bonds are barely above zero, so that financing for roads, bridges, and sewers would be almost free. Second, the difference between interest rates on index and ordinary bonds tells us how much inflation the market expects, and it turns out that expected inflation has fallen sharply over the past few months, so that it’s now far below the Fed’s target. In effect, the market is saying that the Fed isn’t printing nearly enough money.
Posted on: Fri, 17 Oct 2014 14:41:52 +0000
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