US inflation expectations refresh multi-day low despite strong yields

US inflation expectations remain pressured on Monday, despite the latest rush to risk safety, which in turn propelled the US Treasury bond yields.

The inflation precursors as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Behind the moves could be the mixed US statistics and the hawkish Fedspeak. That said, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Moving on, the softer US inflation expectations may test the US Dollar Index (DXY) bulls who keep the reins at a 20-year high of late.

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