Discontinued Expectations

A little tidbit you may have missed.

TIPS are “Treasury Inflation-Protected Securities“.  These are government bonds whose principal tracks the CPI.  They are a great investment if you (a) are worried about inflation and (b) trust the government’s official inflation numbers.

But never mind that.  The important thing is that the market prices for TIPS offer a window into the market’s expectation for future inflation.  Simply by taking the difference between the yield on a TIPS bond and that on an ordinary Treasury of identical duration — and correcting for various technical factors like liquidity — you get the market’s expectation for how the CPI will behave over that duration.

The Cleveland Fed used to publish data on the TIPS spread, with charts and everything.  This was actually one of my favorite sites.  I even copied their latest chart on October 28.

Good thing, too, because as of October 31 the site says:

We have discontinued the liquidity-adjusted TIPS expected inflation estimates for the time being. The adjustment was designed for more normal liquidity premiums. We believe that the extreme rush to liquidity is affecting the accuracy of the estimates.

(I would have preferred “premia” to “premiums”.  O tempora, o mores…)

And that’s it; all the charts and data are gone.

You see, the little green line representing “TIPS spread adjusted for liquidity premium” was starting to go negative, implying an expectation for inflation of less than 0%.  (There is a word for that; three syllables; sounds like “deaf Asian”.)  This Fed is big on “inflation expectations” because they believe psychology has a lot to do with how markets and the real economy function.  If people expect inflation, they accelerate their purchases, demand more salary from their employers, and generally make things difficult for the ol’ central bank.  Wage/price spiral and all that.  So inflation expectations themselves can cause inflation, or so the theory goes.

Well, if it works for inflation, it must work equally well for that other thing that the Fed really, really, really wants to avoid.  And the last thing they need is for some pimply-faced little researchers in Cleveland to make everyone think the market expects that other thing.

I wonder who actually gave the order to pull the plug on the site.

1 comment to Discontinued Expectations

  • doug

    I wonder who actually gave the order to pull the plug on the site.

    Yes, exactly. Couldn’t someone out there rat on them? Come on. It will be anon….

Leave a Reply