The trend in government bond yields suggests that higher interest rates will not subside, which supports fluctuations in inflation
Although the 10-year benchmark Treasury note yield hit a week-long low on Wednesday, economic forecaster Lakshman Achuthan believes the way forward is higher.
According to Achuthan’s own data, the US is already in the grip of inflation.
“It’s not temporary. It’s cyclical,” the co-founder of the Economic Cycle Research Institute told CNBC’s “Trading Nation” on Wednesday. “The underlying trend will stay up regardless of the narrative.”
Achuthan uses a 10-year return chart to back up its bullish inflation call. It shows the returns for the past five years and includes when he made forecasts for the inflation cycle and downturn.
“Six months ago we had an upswing in the inflation cycle that coincided with the earlier call for the business cycle to recover,” said Achuthan, whose time horizon is several months.
At “Trading Nation” in October, Achuthan warned inflation of an “ubiquitous and persistent” comeback. At this point in time, the 10-year return was still well below 1%. But Achuthan had noticed a major change in the future inflation gauge.
His latest forecast suggests that there is no relief in sight. According to Achuthan, breaths should not be taken as a signal that rates have peaked.
“They have an upswing like the summer of 16, which is the left side of the map,” said Achuthan. “You can see these have some staying power, and regardless of the headlines, they stick around.”
His key question now is when rates will fall – not how high they will rise.
“The 10-year return has tripled from a really low level since last summer,” said Achuthan. “To put it in perspective, that’s a bigger step than the 2013 tantrum.”
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