Benzinga - by Shanthi Rexaline, Benzinga Editor.
While the Biden administration celebrates victory over inflation and the Federal Reserve has begun to acknowledge inflation is downward trending, an economist on Thursday dismissed the notion more a wish than a reality.
What Happened: Economist and gold bull Peter Schiff said the U.S. is heading toward a major breakdown in long-term Treasuries and a breakout in oil prices.
The yield on the benchmark 10-year Treasury note topped out at 5.021% in late-October 2023 and began to move lower and hit an intra-day low of 3.800% in late December amid hopes that the Fed will unwind its interest rate hikes. Since then, yields have begun to tick up, and are currently at a little over 4%. Bond yield and prices share an inverse relation, and the dip in the bond yields has pushed up bond prices.
Source: Y Charts
On the other hand, crude oil prices have begun inflecting higher in recent sessions after hitting a near-term bottom in early December. On Thursday, the WTI-grade crude oil rallied 3.20% to $76.22, marking its fourth straight session of gains.
Strong economic fundamentals are positive for the demand for oil and the commodity is also likely to be supported by supply constraints amid the skirmishes in the Red Sea
Against this backdrop, Schiff questions claims of waning inflationary pressure. “This should call into question the false belief that the #inflation war has been won and that the #Fed can cut rates as a result of the victory,” he said.
“It’s also a big risk for the #StockMarket.”
The warning comes at a time, the stock market is trading in record territory.
Why It’s Important: Stocks began rallying late last year, encouraged by the hopes of the central bank beginning to lower the Fed funds rate from a 22-year high of 5.25%-5.50%. Schiff’s premise is that inflation will still rear its ugly head and could leave the central bank on the defensive and continue with its hawkish stance.
The possibility poses further risk to the economy, which many economists believe will see a downturn due to the lagged impact of successive rate hikes.
The iShares TIPS Bond ETF (NYSE:TIP), an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Thursday’s session down 0.08% at $106.48, according to Benzinga Pro data.
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