Friday, September 22, 2017
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer

US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
9/15/17	.98	1.05	1.17	1.30	1.39	1.53	1.81	2.04	2.20	2.52	2.77
9/18/17	.96	1.05	1.18	1.30	1.40	1.54	1.83	2.06	2.23	2.56	2.80
9/19/17	.97	1.04	1.19	1.31	1.40	1.55	1.84	2.07	2.24	2.57	2.81
9/20/17	.98	1.04	1.20	1.32	1.45	1.60	1.89	2.12	2.28	2.59	2.82
9/21/17	.99	1.04	1.19	1.31	1.45	1.59	1.89	2.11	2.27	2.57	2.80

                   

Source: U.S. Department of the Treasury, as of 9/21/17

____________________________________________________________________________________________

What Part of Low Inflation Does the Fed Not Understand?

Here is a graph of the Fed’s favorite indicator of inflation the PCE Deflator, 10yr Treasury yield, Fed Funds Target Rate and the yield curve, spread between 2yr and 10yr Treasuries.  The PCE Deflator tracks overall price changes for goods and services purchased by consumers.  The Fed started raising rates in December 2015. The PCE Deflator rose from a low of .2% in 2015 to a peak of 2.2% in February of this year.  Note that during the most consistent rise in the PCE, occurred during 2016.  Two reasons The Fed refrained from raising rates during 2016 was the vote on Brexit and inflation running well below target. The last time the Deflator was over 2%, prior to January of this year was April of 2012. Remember the Feds inflation target, we are told, is 2%.

The Fed has raised rates 5 times since 2015 and is expected to raise again in December. Is flattening of the yield curve and the rapid decline in the PCE Deflator telling us something? Is the Fed seeing things that the markets don’t?  The PCE Deflator and the flattening yield curve may be signaling not only a lack of inflation but an economy that has lost an accommodating Fed and whose future growth prospects may have little tolerance for higher rates from the Fed.  Stay tuned…

 

 

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

•Not FDIC Insured •No Bank Guarantee •May Lose Value