Long-Term TIPs market pointing to deflation (not inflation)

During the period 2008 through 2017, the Federal Reserve Quantitative Easing program resulted in fairly steady inflation concerns (TIPs Wave Trend) which resulted in steady stock prices (S&P 500 Wave Trend).

As a result of The Great Recession the Fed increased the money supply to over $4.5 trillion by 2017.


2017, Enter “Quantitative Tightening”


In October 2017, the Fed was no longer adding assets to its balance sheet every month, and it then decided to reduce the assets it held every month.

In other words, the Fed had tapered back to $0 in additional asset purchases every month, and was tapering into negative territory through balance sheet reductions which continued until August 2019.

At that point, the Fed’s balance sheet held less than $3.8 trillion in assets. That’s down from its high of more than $4.5 trillion from 2015 – 2017.

Beginning in September 2019, the Fed reversed course and began adding assets to its balance sheet. As a result, inflation concerns topped (TIPs Wave Trend).

Today, despite record stimulus, the TIPs Wave Trend bottomed to where it was when stocks bottomed in March of ’20 and has since then recovered somewhat.

However the TIPs Wave Trend is still very negative which means that the bond market looks at long-term inflation and is more concerned about deflation than inflation.

TIPs Wave Trend = 5 Day Trimmed Mean (70%), 15 Year TIPs Index – 35 Day Trimmed Mean (70%), 15 Year TIPs Index

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