Bond Markets are Acting 'Somewhat Chill' About Long-Term Inflation, Fidelity Global Macro Chief Says

According to Fidelity's director of global macro, Jurrien Timmer, the bond market is showing signs that hot inflation will begin to cool and that a recession isn't as imminent as it appears. Timmer, Fidelity's global asset expert for over 20 years, said rates in the Treasury Inflation-Protected Securities market were either declining or remaining stable, bringing some optimism to inflation expectations.

The Fidelity executive cited the 5-year, 5-year-forward rate — a predictor of five-year inflation five years from now — which has remained relatively stable at around 2% for the majority of the past year as evidence that price expectations are beginning to stabilise.

"The bond market seems to be somewhat chill about long-term inflation effects," Timmer said in an interview with Yahoo Finance. He added that, while the treasury yield curve is flattening, it hasn't completely inverted, which is typically seen as a sign of impending recession. "I don't believe a recession is imminent," Timmer said.

But that doesn't mean the economy is safe. In May, inflation reached a new high of 8.6 percent, the highest rate since 1981. Supply-chain issues are also present, and Timmer is concerned that all of this will have an impact on people's price expectations, potentially leading to chronic inflation.

He expects the Fed to raise interest rates in order to tighten economic conditions, most likely above 3 percent in order to reduce inflation. Even so, the Fed is unlikely to meet its 2 percent inflation target.