Do not expect America’s interest rates to fall just yet

Has inflation been vanquished, or is it bouncing back? The question grips bond markets and governs the world’s economic prospects. At the turn of the year, after the Federal Reserve all but declared victory over America’s excessive price rises, bond yields collapsed in expectation of several interest-rate cuts. Today that bet looks premature. Over the past three months core consumer prices, which exclude food and energy, have risen at an annual rate of 4%, up from 2.6% in the three months to August. Producer prices have risen more than expected and consumers’ expectations of inflation over the next year have gone up, too. Inflation is much lower than at its peak, but it has not yet been defeated. As a result, Treasury yields are roughly back to where they were before the Fed’s doveish turn. Yields on long-dated bonds are higher still.