WSJ Fedwatcher Jon Hilsenrath looks at lower yields
US 5-year breakevens are up 2 bps today but late last week, hit the lowest since January. They're the best measure of where the market sees average inflation over the next 5 years and are pointing to just 1.317% annual price rises.
The latest fall mirrors the drop in oil and commodity prices so it's something the Fed will tend to look through. But the reasons for falling prices include sagging global demand and that's something the Fed needs to heed.
US 5-year breakevens
Hilsenrath notes that the Fed has been skeptical of market-based inflation measures but will still be troubled by the fall is they prepare to hike in September.
He writes: "Drops in market measures of expected inflation now could well make officials more reluctant to move aggressively once they have started pushing up short-term interest rates this year. But given their response earlier this year, it would probably take a much bigger move, or other signs of a shift in the economic outlook, to make them rethink their plans for a first increase."