DECRYPTION – The rise in prices excluding energy and food focuses the attention of the markets, carried away by pessimism.
The reaction of the bond market, Tuesday evening, to the rise, stronger than expected, of inflation excluding energy and food, in the United States, surprised by its violence. The doubling, in August, of the monthly increase, to 0.6%, of this so-called underlying inflation changes the situation for the Federal Reserve.
Yields on US Treasury bonds, and those of private borrowers in the process, are climbing sharply. It now costs Uncle Sam 3.80% to borrow on the two-year markets against 3.57% the day before. At the beginning of January, this same cost of short-term credit was only 0.77%. The equity markets, which these days are following the trend of the bond markets a lot, experienced their worst session in two years in New York on Tuesday.
Curve inversion
The acceleration of underlying inflation, to 6.3% over twelve months, first forces the Fed to raise its key rate sharply next week, during the meeting of its monetary committee. A 0.75% increase in the key interest rate…
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