One Small Step -- In the Wrong Direction

Bad data (or another large terror attack) could derail December "liftoff," but it seems to be a fait accomplis . Gold and the dollar are indicating a large deflationary error. But other markets, including inflation compensation markets, don't seem to care m uch. The Fed has been diligent in promising a "shallow" hiking regime -- indeed Yellen's "38 words" have been promising it ever since she arrived. We don't expect a lot of fallout in emerging markets, for whom this is old news, and who can be the beneficiary of passive devaluations. The Fed's beloved Phillips Curve is a myth, and with housing cooling off, there's no reason to expect core inflation to rise. So bond yields needn't back up with even a "shallow" hiking regime, which leaves the equity risk premium safe from a yield shock