Inflation Breakevens Expose the Fed’s Crumbling Independence—Here’s Why It Matters
Markets are screaming what policymakers won’t admit: The Fed’s grip on inflation expectations is slipping. Breakeven rates—the bond market’s inflation forecast—are flashing red as traders bet the central bank will blink first.
### The Fed’s credibility crisis in 3 charts
When breakevens surge, it means investors see inflation outstripping the Fed’s targets. Right now, they’re pricing in the kind of price spikes that used to get central bankers fired.
### Why this isn’t just about inflation
It’s a referendum on monetary policy itself. Every basis point move in breakevens chips away at the illusion of Fed control—and makes ‘transitory’ sound like Wall Street’s favorite joke.
### The cynical take? This was inevitable
After years of balance sheet gymnastics and moving goalposts, the market’s finally calling the Fed’s bluff. Spoiler: In the battle between inflation and independence, inflation always wins. Just ask your 1980s economics textbook—if you can afford one after CPI adjustments.
Typically, breakevens track the price of oil since it’s the largest driver of inflation. What’s concerning right now is that breakevens are surging while oil is hardly moving and, if anything, is declining.
In Jens’ view, this is a distillation of the market beginning to price-in, and become concerned with, inflation expectations becoming unanchored as Fed independence erodes.
With Powell’s term ending in the winter of 2026, keep an eye on this market and whether this concern accelerates. The bedrock of the financial system depends on these expectations remaining well-anchored.
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