Submitted by Taps Coogan on the 21th of February 2020 to The Sounding Line.

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CNBC’s Rick Santelli recently spoke with Deutsche Bank Securities Chief Economist Torsten Slok about the recent jump in producer price inflation and the failure of the long end of the treasury curve to get off of 40 year lows and reflect anything in the economy other than Fed policy.

 

Rick Santelli:

“I think we had a rather hot PPI. Certain metrics we haven’t seen ever, granted this PPI calculation only goes back to 2010. And housing, whether you look at starts or permits, is basically at 13 year highs. My question is specific. Interest rates haven’t moved. They’re in exactly the same place now as before the data was released. What do you make of that?

Torsten Slok:

“…It tells you that the market has a very very strong view that it’s very difficult to see the Fed raising rates anytime soon… It’s very very difficult to get the market out of the idea that the next move for the Fed will ultimately be a cut.”

Rick Santelli:

“…The long end isn’t supposed to be about the Fed. It’s the short end and the complexion of the curve that’s effected by the Fed. The long end is supposed to be our barometer of economic activity and it’s failing miserably.”

Torsten Slok:

“Absolutely… long rates should be moving when the inflation data surprises to the upside and in particular the magnitude of the surprise we saw today (February 19th)…”

Rick Santelli:

“…If history is any lesson (if the Fed tries to tighten), the market will have a fit and the Fed will ease more and other central banks will follow and currencies will get distorted. We’ve seen this movie before.”

In recent days, the 30-Year Treasury has hit its lowest levels since it was first introduced in 1977. That comes despite recovery in most regional manufacturing PMIs in the US, some of the best housing sector numbers of this expansion, and nearly all inflation metrics trending higher. Either the Fed has manipulated the Treasury market so badly that it is now useless as an economic indicator, as Mr. Santelli seems to think, or long term rates don’t buy the economic recovery narrative at all.

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