Fed Chairman Ben Bernanke's remarks last week show he is relying on labor and capacity slack to justify his aggressive quantitative easing: "Wage growth has slowed…with average hourly earnings increasing only 1.8 percent last year. These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy." We expect core inflation to remain reasonably well contained in 2011. Our bearishness on long-dated bonds is based on their lack of a price cushion if the Fed can generate either faster growth or rising inflation. US wage compensation trends, with high unemployment and spare capacity, contrast with much of the emerging world where wage-price spirals are firmly in effect, necessitating central bank tightening and prompting financial market underperformance.

David Fuller's view With the US economy recovering, albeit gradually, unemployment is Mr Bernanke's primary concern. There is not a great deal that he can do about it, other than keeping short-term rates low and the USD soft.

Short US 30-year Treasury Bond futures is currently my largest trading position.

(Personal trades and investments are reported as they occur. Mine can be found in the Archive above by Searching under - my personal)