Salient to Investors:
The bond market shows no anxiety of inflation risk – the break-even rate for 5-yr TIPS, or yield difference between inflation-linked debt and Treasuries, is 2.07 percent. The median economist expects growth of 2.2 percent in 2012 and 2 percent in 2013.
Dean Maki at Barclays is convinced the Fed will get it just right,, and thus is providing little resistance to the Fed’s easing. Maki expects the FED to continue buying bonds at its current monthly pace after the expiration of Operation Twist by year-end.
FRB of New York President William Dudley said joblessness is unacceptably high while inflation expectations are consistent with longer-run inflation objectives. Boston Fed President Eric Rosengren supports providing stimulus through asset purchases. Philadelphia Fed President Charles Plosser says it may be very difficult to reverse course, while James Bullard of St. Louis says replacing Operation Twist with outright purchases would risk higher inflation.
Dana Saporta at Credit Suisse sees no inflation problem near term at all, and says QE3 poses no inflation risk.
Stephen Stanley at Pierpont Securities no longer worries about inflation, and is not optimistic about economic expansion, seemingly stuck in an everlasting 2 percent-type range. Stanley says QE is raw material for inflation down the road, but it won’t change much until the economy catches fire.