Traders see U.S. inflation averaging at least 2% per year over the coming decade, the first time expectations have climbed that high since 2018.<\/p>\n
The 10-year breakeven<\/span> rate — a measure that draws on pricing for inflation-linked Treasuries — rose as high as 2.01% Monday, a level last seen more than two years ago, data compiled by Bloomberg show.<\/p>\n The gauge has gained momentum as traders prepare for an uptick in the world economy in the wake of a deal on Brexit and the approval of additional virus-relief aid in the U.S. The roll-out of vaccinations against the coronavirus is also fueling the move higher, as is speculation that Tuesday\u2019s U.S. Senate runoff elections in Georgia could give Democrats control of Congress.<\/p>\n \u201cThere\u2019s a general expectation that the increase in demand as things return to normal will lead to higher inflation because supply chains are still disrupted,\u201d said Michael Pond, head of inflation-linked market strategy at Barclays Capital. The possibility that Democrats will win Tuesday\u2019s votes creates additional upside potential for breakevens, he said. \u201cIf we do have unified government, more can get done and we\u2019ll probably see a bit more fiscal stimulus.\u201d<\/p>\n The Federal Reserve is setting the tone for markets, making a renewed push to revive inflation — which has been too low for years. In August, policy makers announced that they would seek inflation that averages 2% over time by allowing price pressures to overshoot after periods of weakness. Buoying expectations for inflation is key to lifting inflation itself, officials have said.<\/p>\n