by Ye Xie and Liz Capo McCormick
BNN Bloomberg
(Bloomberg) — Two years into the Federal Reserve’s battle against inflation, bond investors are seeing a new risk: Consumer price growth is slowing too much.
A day ahead of the August inflation report, one gauge of expectations of consumer price index increases is showing that the inflation rate is in danger of falling below the Fed’s target. The central bank has long argued that persistently low inflation is as detrimental to the economy as elevated prices because it would force policymakers to keep borrowing costs too low for too long, reducing the Fed’s ability to fight off economic downturns.
“Market participants are sensing that the inflationary surge is now fully over, and there’s some chance here now, with the balance of risk being shifted to the employment mandate, that the Fed undershoots its inflation target,” said Tim Duy, chief US economist at SGH Macro Advisors. “You do have to take those risks fairly seriously.”