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Schrute Bucks: Inflation and 10 Year Treasury Yields Rising — What Is Holding Back The Fed?

This is a syndicated repost published with the permission of Confounded Interest. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Core inflation is above 2% and the 10 year Treasury yield has been gradually rising recently. core10y

Bear in mind that US bank deposit rates are virtually zero, yet inflation is running at 2.3%. That means that US bank deposit rates are earning a NEGATIVE REAL RATE.

And this morning, the preliminary Markit Purchasing Managers Index (PMI) for July posted another gain and seems on an upward path.

bpmijuly

Of course, The Federal Reserve is concerned over the UK and EU banking crisis (bank stocks have fallen dramatically since the credit bubble burst and recession in 2008/2009. But the good news is that Deutsche Bank has risen above $14 per share again!

eurobanls

And core Personal Consumption Expenditures (Core PCE) is only at 1.62%. But it is amazing that the Rudebusch specification of the Taylor Rule Model indicates that the Fed Funds Target rate should be 4.93% compared to the current target rate of 0.50%.

taylorrude

So there are reasons (European banks, sub-2% core PCE growth) for The Fed to sit on their hands. But there are several indicators (10 year Treasury yields, core CPI growth, PMI) that suggest that The Fed Funds Target rate be raised. But if the believe the Taylor Rule, the Fed Funds Target rate should be increased at the next FOMC meeting.

Perhaps Janet Yellen and The Federal Reserve should issue “Schrute Bucks” instead of the US Dollar.

schrutebuck

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