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Oil Price Slump Keeps Inflation (and Growth) Expectations Low

Further reading into the Fed’s rate increase, accompanying statement, press conference, and subsequent commentary indicates they are bent on “normalization” regardless of weak data.   The price of oil dropped to $42.50 per barrel, a 10 month low and officially entered “bear” territory for the year.   The 30 year Treasury yield hit a 7 month low at 2.72%.   Note that the 30 year T is the one most sensitive to inflation conditions.   The Fed’s description of recent low inflation reports as “transitory” or “seasonal” shows they are looking “past the data” and their own stated inflation thresholds in order to effect normalization (higher rates, shrinking holdings).    Perhaps they are trying to get ahead of events to prevent a panicked series of rapid rate increases in the future. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.

Correction:  In my column last week, the Fed Balance sheet was quantified at $4.2 billion, the correct number is $4.2 trillion.