US Bond Performance Shows Fed Isn't Behind the Curve

Back in March, “the Fed is behind the curve” was the prevailing narrative of too little, too late when it came to containing inflation. The only problem was that the $30 trillion US bond market disagreed. The people who buy and sell Treasury securities around the world were obviously aware of the surging cost of living and bet their fortunes and reputations on the Federal Reserve fulfilling its data-dependent mandate to bring inflation, which peaked at 9.06% in June as measured by the Consumer Price Index from a year earlier, down to the central bank's target of 2% before spiraling prices became embedded in the economy.

To be sure, US debt of all types violently lost 13% in 2022 as the Fed raised its target interest rate on overnight loans between banks seven times, from 0.25% to 4.50%, in an unprecedented amount of tightening for the 109-year-old central bank in such a short period of time. Even so, US bonds still outperformed the benchmark for fixed-income assets globally as well as related securities issued by the Group of Seven developed economies, according to data compiled by Bloomberg.