When Federal Reserve Chairman Jerome Powell downplayed the threat of rising inflation last week, market participants saw the opposite: The recent rise in 10-year U.S. Treasury-bond yields and so-called breakeven rates – a gauge of inflation expectations – reflects growing enthusiasm over economic growth prospects but also anxiety over the potential for accelerating price increases.

The matter is crucial to bitcoin traders, since the largest cryptocurrency is seen by a growing number of investors as a potential hedge against higher prices after the Fed pumped trillions of dollars of freshly created money into financial markets over the past year, a form of monetary stimulus for the coronavirus-racked economy.

On Wednesday investors will get the latest reading on price pressures when the U.S. Bureau of Labor Statistics publishes its February Consumer Price Index (CPI) report.

  • Economists and analysts on average project that the headline CPI probably rose 1.7% over the past 12 months, accelerating from the 1.4% pace reported last month January, according to FactSet.
  • The core CPI, which excludes food and energy prices, probably rose 1.4% from a year earlier, the same pace as in January.
  • While those rates are still considered low, expectations for future inflation have been on the rise. Consumer inflation expectations for the year ahead have edged up to 3%, the highest since July 2014, based on a February household survey conducted by the Federal Reserve Bank of New York.
  • "Inflation risks are skewed to the upside," according to a Deutsche Bank research report published March 7.
  • The rapid rise in inflation-adjusted yields on U.S. Treasury bonds presents risk of an unwanted tightening of financial conditions, which might present a challenge to markets, according to Deutsche Bank: "We see limited scope for the market to further accelerate the timing of monetary tightening for the time being."
The rise in yields reflects market expectations for higher growth and inflation.
Source: St. Louis Fed
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