At the current rate, the US treasury yield curve will achieve perfect flatness in mid-2019.

That's what the long-term trend on the long-side, coupled with a shorter-term trend on the short-side suggests.

The convergence point is approximately 2.72% in mid-2019.

I am quite sure that won't happen in the 2019 timeframe, but it could easily happen this year.

All it would take is three rate hikes in 2018 with the rest of the curve not reacting.

That's not my call, but the more aggressively the market prices in future rate hikes, the more likely it is.

If we get to that point, we will be on the verge of economic collapse.

Inflation is in the Rear-View Mirror

Those looking for a huge inflation boost fail to understand credit dynamics.

Austrians who only look at money supply keep expecting pent-up inflation. The Monetarists at the Fed (central banks in general), are clueless about the situation they fueled.

Perhaps we get consumer inflation for a quarter or two, but inflation is in the rear view mirror, primarily having impacted asset prices, not consumer prices.

Rising interest rates are already starting to impact the housing market.

The auto market, home supply markets, and consumer credit in general got a temporary housing boost.

What's next won't be pretty, and almost no one sees it coming. They can't. Inflation is in the rear-view mirror.

What economists expect to happen, already has. They don't see it because they do not understand what inflation really is.

Weakening Economy

The economy is weakening and the Fed, fearing inflation is hiking right into it.

  1. March 16: Housing Starts and Permits Well Below Most Pessimistic Estimates
  2. March 16: GDP Forecasts Dive: GDPNow Forecast Dips Slightly: Baseline 1.8%, Real Final Sales 1.1%
  3. March 15: Import Prices Rise 0.4%, Exports 0.2%: Bond Yields Mostly Yawn
  4. March 14: Confidence? Retail Sales Down Third Month
  5. March 12: Synchronized Global Growth is Ending: Shocks Come Next
  6. February 28: Pending Home Sales: Pending Sales Unexpectedly Dive to Lowest Level in 3.5 Years.
  7. February 27: Durable Goods: New Durable Goods Orders Dive 3.7%
  8. February 26: New Home Sales Down 7.8%: Six Reasons Sales Can't Break Out

I can find only one good hard data report in the past few weeks: Industrial Production. Add jobs if you like and call it two.

However, real median wages have fallen in seven of the last eleven years!

This helps explain the falling savings rate. It certainly does not support consumption.

Debt Deflation Coming Up

I expect another round of asset-based deflation with consumer prices and US treasury yields to follow.

Buy long-term treasury calls or long-duration Treasury ETFs.

The higher rates get, the better those calls and ETFs look, even if we do not hit convergence.

Mike "Mish" Shedlock