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MBS Day Ahead: How Inflation Matters in The Bigger Picture

Posted To: MBS Commentary

This morning brings the week's first major economic report in the form of the Consumer Price Index (CPI)--one of the biggest inflation reports. Inflation has been an on-again, off-again market mover for the bond market over the past 10 years for a few reasons. That's an assertion that makes old school market watchers cringe because a big part of their worldview is informed by the inflation drama of the late 70's and early 80's. In fact, it's only really been in the past 20 years that inflation has been relatively well-behaved (i.e. holding fairly close to the Fed's 2% target). The runaway inflation seen in the 70's was such a big deal for markets that any traders who remember it (and some who simply studied it) have a hard time letting go of fear that it could return...(read more)