There were no real surprises in the Feds comments yesterday. The emphasis by the FOMC was on its belief that it does not see inflation as a problem to be immediately concerned about. The WSJ notes that “officials deleted previous references to the risk that inflation could persist below desired rates, an indication that they don’t see deflation as a risk.” The Financial Times adds that the FOMC “maintained that it was moving ahead with its $300bn Treasury purchase plan and said that it would ‘continue to evaluate the timing and overall amounts of its purchases of securities’. It made no changes to its previously announced plans for the total volume of purchases or for timing.” Bloomberg makes the same points.
OK the Fed might not see inflation as a problem or issue (albeit not that they openly admit to it), but the market certainly suggests that inflation is on its way. We look at the performance of inflation protected treasuries against non inflation protected in both the US and international bond markets. The trend is clearly positive, furthermore there trend in commodities is also positive confirming the behavior of inflation and non inflation protected treasuries.
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