The year-over-year CPI May headline gain surged to 5.0% and y/y core CPI to 3.8%, the largest gains since 1992. That, along with “blast-off” in the title, should have gotten your attention. So why is the 10-year U.S. Treasury yield continuing to drop to a 1.4 handle? Well, a week or so ago, we discussed the ending of the Federal Reserve’s “SLR” exemption, AKA, “stealth Fed tightening,” which has changed sentiment markedly and led to not only dropping yields but a strengthening dollar. The market has woken up to the fact that the Fed could stop inflation with a snap of its fingers, and inflation is a good thing until the “coast is clear” for the economy.
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