Pictures show the answer is shockingly little.
Oil vs Yields Key Points
- There is little if any correlation between the price of oil and long-term treasury yields.
- There is little if any correlation between the price of oil and the Fed Funds Rate
- The secular bull market in long-term bonds is over
Price of Oil vs Treasury Yields and Fed Funds Rate Detail
Detail Key Points
- The Fed ignored bond market pressures, the CPI, and PCE holding the Fed Funds Rate at zero, too low, too long.
- The Fed adhered to its preposterous forward guidance and kept up QE when it was obvious to the world an inflationary inferno was building.
- In Late 2022, long-term bond yields kept rising despite dramatically declining oil prices.
- Over the long haul, there has been little if any correlation between the price of oil and treasury yields. At times they are correlated and at times not.
Current State of Affairs Interpretation
- The bond market does not believe in oil-price disinflation.
- Why should anyone else?
These charts put a further spotlight on numerous Fed errors, ridiculous reliance on forward guidance, QE to infinity, and paying interest on reserves to force the Fed’s view on the market.
It also suggest the Fed should pay more attention to signals from the bond market about being behind the curve instead of setting targets based on what the Fed wants to believe.
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I think Warsh’s stopping forwsrd guidance and his explanation that markets should do their job instead of just self fulfilling the Fed’s analysis is one of the most positive things to happen in a LONG time
The business of just following the fed analysis just creates a big circle jerk and everything becomes correlated to the latest Fed prognostication
So once that happens it’ll be really clear there is no correlation – and the banker class will have to do their jobs and earn their money. I predict alot of wheat/ chaff separation
Wow, now lowering the price of oil isn’t good? Cheaper fertilizer is bad now? Cheaper operation on farms is not a good thing? Dang, after Trump was crucified for high oil prices … now they come down and we hear it doesn’t matter. Hmmm..
You really should read the article before you get your undies in a bunch…
After your comment, I reread the article looking for where Mish said lower gas prices don’t matter and didn’t find it.
Meh…