RATE RIDDLE

Wage growth is running at 3.5% Y-o-Y and home prices at 1% Y-o-Y, but inflation is 4.2%. Moreover, construction spending is down 1.5% Y-o-Y (more after inflation) and payroll growth is barely positive at 0.3% Y-o-Y, the Household Survey is at -0.7%. Weakness is clear. It’s why both 10-year TIPS and 5-year/5-forward inflation expectations are 2.2%, where they were pre-war. What’s surprising is pre-war there wasn’t talk of rate hikes.