Source: Bloomberg

So-called real yields, or the yields on Treasury Inflation-Protected Securities (TIPS), have traded in a narrow range during the past three months and remain basically unchanged. When the Federal Reserve raises interest rates, real yields are the most affected. The stability of real yields during the past three months indicates that expectations about Fed interest hikes during 2018 are already built into the existing level of real yields.

Although the headline inflation rate certainly will rise with the oil price, the so-called core inflation rate (excluding volatile food and energy prices) isn’t doing much, and wage increases remain muted. Year-on-year, average hourly earnings of US employees are rising at just 2.5% a year, barely above the inflation rate.

The rise in the oil price, that is, doesn’t portend a broader rise in the US price level, or more tightening by the Fed.

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