BIG NUMBER 43

Investors increasingly expect the Fed will not cut rates anytime soon as oil-driven inflation fears have pushed bond yields higher in recent weeks. Monitor real (inflation-adjusted) yields as the key signal of economic health — rising real yields imply tighter financial conditions and greater downside risk for risk assets. For now, inflation (via energy prices) is the primary policy risk, not growth.

Analysis

Investors increasingly expect the Fed will not cut rates anytime soon as oil-driven inflation fears have pushed bond yields higher in recent weeks. Monitor real (inflation-adjusted) yields as the key signal of economic health — rising real yields imply tighter financial conditions and greater downside risk for risk assets. For now, inflation (via energy prices) is the primary policy risk, not growth.