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Fed fears already hitting long-term real yields

NEW YORK – Inflation always threatens to turn into stagflation, when consumers balk at higher prices and producers throttle output because input costs are too high to pass on to reluctant consumers.

We’ve seen a few warnings of US stagflation as inflation spiked to the highest levels since the 1970s: for example, slower-than-expected employment growth, larger-than-expected weekly unemployment claims and disappointing May retail sales.

On Thursday the Fed gave the most indirect, pusillanimous and faint-hearted signal that it might raise its overnight rate in 2023. The bond market reacted as if the barbarians already were at the gates.