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Old 10-30-2009, 10:53 AM
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Default Cleveland Fed Inflation Model Finds Favorable Results

From WSJ (and then attached is pdf of Cleveland Fed report)...

Those trying to measure future inflation expectations just got a hand from the Cleveland Fed.

A new commentary from the regional bank it has created a model that estimates the expected inflation environment from one month out to 30 years. It also provides estimates of the inflation risk premium and a measure of real interest rates. Its findings suggest the U.S. is facing a benign inflationary environment, which should cheer policy makers who are facing big questions over the future of monetary policy.


The model also shows that even with all the stimulus the Fed has provided over the last two years, including a huge expansion in the central bank’s balance sheet and rock-bottom interest rates, the public doesn’t doubt policy makers will pursue their core mission.

“The Federal Reserve still has credibility in keeping inflation low” and “the massive increase in its balance sheet and the accompanying increase in banking system reserves has not served to unanchor the public’s expectations of inflation,” Haubrich said.

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Old 10-30-2009, 11:09 AM
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Expectation of high inflation is currently not priced into the fixed income markets.

The 30 year treasury is yielding 4.5%, 30 year TIPS around 2.06%, and the pay fixed portion of a 30 year USD LIBOR swap is 4.16%.
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