While US 10-year inflation compensation has dropped back today in the wake of a pull-back in the price of oil, the bigger picture is that it had previously surged this week to its highest level this century. That might seem surprising, given that the accompanying gain in the price of oil reflected concerns about its supply rather than expectations of stronger growth. Even so, if higher prices of commodities prevent inflation from dropping back quickly, inflation compensation might rise again in due course and embolden the Fed. For now, we are sticking to our forecast that the 10-year Treasury yield will end 2022 at 2.25%.
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