With economic and jobs growth rebounding, the outlook for inflation has increased. As the unemployment rate falls and the U.S. economy reaches a level closer to “full employment,” wages typically begin to accelerate setting of higher inflation. Further adding to this scenario would be the Fed raising interest rates sooner and more quickly than the market expects. Based on current feds funds futures contracts rates, the markets appear to be underestimating the moves the Fed itself expects to make. The near-term investment implication of higher-than-expected inflation or faster-than-expected rate hikes is increased volatility in the stock and bond markets.
Higher Inflation Ahead?
| August 28, 2014