During the June press conference of the Federal Open Market Committee (FOMC), Federal Reserve Chair Janet Yellen downplayed the recent slowdown in inflation. She even went so far as to call attention to cell phone service pricing as a temporary factor affecting inflation expectations. Fed watchers had started to doubt whether the central bank would further increase rates this year as inflationary pressures ebbed. Yellen’s statements sent rates on the 10-year Treasury plunging as most see little evidence that the Fed will be able to reach its inflation target of 2% this year. But what if… Read More
During the June press conference of the Federal Open Market Committee (FOMC), Federal Reserve Chair Janet Yellen downplayed the recent slowdown in inflation. She even went so far as to call attention to cell phone service pricing as a temporary factor affecting inflation expectations. Fed watchers had started to doubt whether the central bank would further increase rates this year as inflationary pressures ebbed. Yellen’s statements sent rates on the 10-year Treasury plunging as most see little evidence that the Fed will be able to reach its inflation target of 2% this year. But what if Yellen is right? What if pricing pressures are heading higher? A return to inflation after years of subdued pressure would have far-reaching effects on the economy and different assets. Not only would increased inflation send bonds reeling, but it could also derail the eight-year bull market by slowing price growth via higher interest rates. With the unemployment rate nearing 4% and economic growth pulling people back into the labor force, the Fed is firmly in disagreement with the market on the outlook for inflation. Only one of them can be right. So Who Is Right? The markets do not… Read More