Rates rise despite political tensions

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news benchmark interest rates are rising despite the political tensions.</p><p>Somewhat surprisingly, American inflation expectations eased a bit in January, falling from 6.0% to 5.8% as the expected inflation over the next year in the large <a href="https://www.newyorkfed.org/microeconomics/sce#/" target="_blank"><strong>New York Fed national survey</strong></a>. This is the first decline in short-term inflation expectations since October 2020. Similarly, median three-year ahead inflation expectations decreased by 0.5 percentage point to 3.5%. The decline in medium-term inflation expectations was broad-based across age, education, and income groups and is the largest one month decline in the measure since the inception of the survey in 2013. </p><p>The yield on the benchmark US 10-year Treasury note rose again to above 2% on Monday and the 2-year/10-year yield curve fell to the flattest since July 2020, as bets for a +50 bps rate hike from the Fed increased again. St. Louis Federal Reserve President Bullard has reiterated his call for +100 bps of hikes by the end of June during the <a href="https://www.cnbc.com/2022/02/14/bullard-say-the-fed-needs-to-front-load-tightening-because-inflation-is-possibly-accelerating.html" target="_blank"><strong>interview on CNBC</strong></a>.</p><p>Meanwhile, another Fed official, Esther George from the Kansas City Fed, <a href="https://www.wsj.com/articles/wsj-interview-with-kansas-city-fed-president-esther-george-11644849173?mod=article_inline" target="_blank"><strong>said</strong></a> the central bank should consider selling bonds from its US$9 tln asset portfolio to address high inflation and guard against harmful effects that can result from raising short-term rates above long-term rates.</p><p>Cross-border traffic between Detroit and th