According to the gentleman below, inflation and higher interest rates are just around the corner. But don’t worry, based on his analysis it will not derail the current economic recovery nor the bull market. It will only accelerate it.
Our mathematical and timing work tends to disagree. Even though some food prices are surging higher, CPI index remains below 1%. In fact, most of the inflation we have seen over the last few years went right into our capital markets in the form of asset price appreciation. When the bear market of 2014-2017 kicks into it’s high gear you will very quickly see all inflationary pressures turn deflationary. Eventually, we will see inflation, but it won’t be before 2017.
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Is Inflation Really Around The Corner This Time Around? Google
Breakout: Believe the hype, inflation really is coming this time
“Inflation is coming!” We’ve heard it for what seems to be forever. Then came the report of the March leading economic index for March. It increased by 0.8% after rising 0.5% in February. It’s just the latest data point in a series of indicators that Hugh Johnson of Hugh Johnson Advisors says is evidence that this time inflation really is coming.
“We’re not talking about 3% or even 4% inflation,” Johnson told Breakout, “but we are talking about inflation rates as measured by the consumer price index of say 2.1% in 2014 and 2.3% in 2015. That’s stronger than the consensus and certainly stronger than Janet Yellen thinks is on the way.”
So what does that mean for Yellen and a Fed who have kept rates effectively at zero for as long as many young investors can recall?
Johnson says:
I think when you get to about the middle of 2015…you’re gonna start to see unemployment rate which are gonna be very low, somewhere around 6%, you’re gonna see inflation rates as I mentioned are gonna be a little bit higher and that’s when the Federal Reserve is gonna consider very seriously about raising it’s target for the federal funds rate from the 0-25 basis points to as much as the 25-50 basis point range.
That would force interest rates across the board higher, including the 10-year treasury Johnson notes.
Even is he’s right Johnson cautions investors not to radically alter their portfolios.
“Interest rates are still going to be historically low at this level…it’s not going to derail the bull market,” he says before reiterating investors should stay in stocks here.
Yes inflation may finally start to become a problem, but not a big one according to Johnson.