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Interestingly treasury yields are down on this news, whereas on paper you would expect the opposite. Equities are up, on paper you would expect a toss-up (lower rate cut pushing down, inflation pushing up). Gold is down slightly.

All this suggests these numbers, while being inflationary, are better then anticipated.

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What is probably going on is the following:

- if inflation picks up again it will have to be controlled

- going by 1970s experience it may be that an engineered recession is required to bring inflation down

- recession fears is risk-off

- risk-off means go into bonds and out of stocks

But yeah, inflation is a double edged sword on bonds. To some extent higher inflation expectations should mean that yields on bonds should go up to provide a consistent real return.

You are correct that this is confusing… one of these markets, broadly speaking, is wrong.

I think the bond market is betting on no rate cut and we are seeing early entrants into a larger flight to safety.

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