Today both the 5 year and 10 year inflation breakevens dropped quite significantly breaking out of their recent ranges.

https://fred.stlouisfed.org/series/T5YIE

https://fred.stlouisfed.org/series/T10YIE

This is likely one of the metrics the Fed has been monitoring to assess if inflation is becoming ingrained into future expectations. This move lower may also be a sign that the market is starting to believe inflation is peaking.

I thought it might be nice to share this given all the negatives out there at the moment. It’s possible that if this down trend in inflation expectations continues over the next couple of weeks it may take some of the pressure off of the fed and they may opt to proceed more cautiously with hikes going forward, especially if core CPI comes in lighter than expected on Wednesday.