US long-term inflation expectations reach highest since Q2 2019

According to the Wall Street Journal's newsletter The Daily Shot, the longer-dated US inflation expectations are rising and lifting treasury yields. 

The 5-year, 5-year forward inflation swap rose to 2.2% on Wednesday to reach the highest levels since the second quarter of 2019.

The record monetary and fiscal stimulus unveiled by the Federal Reserve (Fed) and the US government earlier this year to counter coronavirus-induced slowdown has helped inflation expectations nearly double from the low of 1.2% seen during the March crash. 

The US 10-year yield rose to four-month highs above 0.8% as rising inflation expectations, and expectations for additional US fiscal stimulus weighed over bond prices. 

Indeed inflation expectations are now hovering above the Fed's target of 2%. That does not imply monetary policy tightening, as the Fed is targeting average 2% inflation. In other words, it will allow inflation to run above 2% for some time before raising rates.