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Treasury Fudges Numbers??

 May 06, 2012 03:03 PM


(By Bruce Krasting) The Treasury Department's Dr. Janice "Jan"  Eberly put together a deck of slides describing the state of the US economy. (Link) This is an impressive presentation with charts on many key economic variables. You can't blame the good Doctor for putting a spin on her presentation. After all, this is an election year, so putting lipstick on a pig is to be expected.




There was one slide that caught my eye. It was in a section labeled:



As "evidence" that the US is on the right fiscal footing, the Treasury provided this chart on inflation expectations:

 

Short and long term inflation expectations are just 1.5% according to this impressive presentation. I think the chart is wrong.

The Treasury Department does not tell us where it got the information supporting the claim that inflation expectations are so low. The only place I know to look for a market-based forecast on future inflation is the TIPs versus coupon spread. Possibly the Treasury has some other source. 

Bloomberg tracks the implied inflation outlook that is derived from market data. This is the Bloomberg methodology:




This is pretty simple stuff.

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