The 10yr-2yr and 10yr-3mo Yield Curves show the Fed to be behind, well, the curve
With a deflationary impulse, which we have anticipated, that is the product of the already suspect economy coming under further strain of the trade war (tariffs have provided a good bit of inflationary misdirection for the public to digest), the 10yr-2yr yield curve is steepening under said deflationary pressure (short-term yields have dropped relative to long-term yields for the entirety of 2025 so far).
I have read some market analysis noting that the steepener in the 10-2yr is “not confirmed” by the 10-3mo. But that is another way of saying that the Fed has not yet agreed to be actively influenced by the bond market. If current (2025) events continue on the path they are on, the Fed will be compelled to catch up soon enough.
The 10-2yr is a freer bond market indicator. The 10-3mo is the freer bond market (10yr) in relation to the Fed proxy T-bill yield, AKA the yield that the Fed does have influence over. Hearken back with me to 2022 when we noted the “tardy Fed” and its hesitance to start fighting inflation:
Eggheads Tardy in Doing the Right Thing
So what makes us think they know WTF they are doing in real time on this occasion going the other way?
When the Fed finally takes its foot off the breaks, just as it finally took its foot off the gas in 2022, it will be tardy once again. The bond market is saying so.
I am actually surprised that Trump is not trying to rip Powell a new asshole at this point. Or is he? I don’t have Truth Social.
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“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Trump said in a post on Truth Social. “Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”