As central banks throw the kitchen sink at inflation, there’s a question circulating among market participants: how hawkish can you go? Today’s Chart of the Day might just provide a road map. It shows the two-year Treasury Inflation-Protected Securities (TIPS) yield that still remains in negative territory even as most of the rest of the yield curve is back in the green.
In his June press conference, Chairman Powell highlighted that difference, but in a panel with Bloomberg’s Francine Lacqua today, he said the yield curve isn’t the indicator to watch. But for investors, it’s worth noting that since 1990, the Federal Reserve has never ended a tightening cycle with negative real policy rates. That means even with historic margins of rate hikes, as long as front-end real yields stay negative, the Federal Reserve is likely to stay hawkish even with recession talk in the background.
You can read more about this from my colleagues Liz McCormick and Ye Xie if you have a Bloomberg Terminal here.
You can catch the Chart of the Day segment at 7:45am NYT on Bloomberg Surveillance. If you have a Terminal subscription, enter G #BTV 1559 in the search bar for access to the chart.