Goldman Sach senior rates strategist Silvia Ardagna told clients last week the market is mispricing the potential of rising inflation:
As unemployment continues to fall and excess slack gets absorbed, we expect that US core and services inflation, which are already contributing about 2 percent to headline inflation, will continue to accelerate gradually but faster than the market expects.Ardagna noted how the futures market is pricing inflation to average 1.25 percent over the next five years, which she says is too low as stronger wage growth and easier energy price comparables will make 2016 more reflationary.
The idea that we are stuck for years to come in a low inflation environment is absurd. The big problem is not that the Fed "can't" raise rates, but that they will be too slow in raising rates, We are in the early stages of a multi-year climb in rates. -RW