Rosengren, Eric

Figure 16 highlights how low 10-year Treasury rates have fallen recently. Japans experience and now Europes current situation both indicate that indifference to very low inflation rates can generate a significant loss of confidence in the ability of a central bank to hit its inflation goal. It is hard to reconcile the market evidence a 10-year German bond trading around 85 basis points and a 10-year Japanese bond trading below 50 basis points with the publicly announced inflation targets. Bond market evidence suggests that investors have little expectation that 10-year average inflation rates will be anywhere close to their publicly announced targets.