Economics
Bond Market Flashes Stagflation Alarm After Fed’s Gusher of Cash
- Stephen Roach says low-growth, high-inflation period to come
- Debate emerges as yield curve steepens, U.S. stocks surge
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The bond market is sounding the alarm that the flood of cash that policy makers have unleashed to buoy growth in the face of the pandemic will have potentially painful consequences for the economy.
The Treasuries yield curve is the steepest in three years, with long-maturity rates climbing as the Federal Reserve prints billions of dollars a week to add to its stockpile of government debt and other assets. The steepening phenomenon is typically a signal of improving growth prospects, and riskier assets such as stocks are certainly rallying. Yet some investors are more wary about what it says about inflation expectations, with U.S. activity merely giving a hint of bottoming out from what’s likely the deepest slump in living memory.