We’re seeing more signs of inflationary pressure in our economy. For example, the Kansas City Fed’s index for prices took a big leap from July – a seasonally adjusted move from 52 to 61[i].
More evidence of inflation came when federal reserve chairman, Jerome Powell indicated recently that he and other officials recommended that the central bank can “taper,” or slow down, the pace of its bond purchases in 2021[ii].
Investors see signs, too. One recent quarterly tracking study of experienced investors showed a spike in inflation fears. The study showed that “inflation” was listed as the top portfolio risk in the study, outpacing market volatility and health concerns[iii].
Powell, in his typically measured way, said inflation at this level “is a cause for concern[iv].” But he’s not alone in suggesting that the elevated inflation readings “are likely to prove temporary. Almost 4 out of 5 seasoned investors agree with the Federal Reserve’s view that inflation is transitory[v].
Some investors experience anxiety about inflation, since inflation can shrink your savings and have a significant impact on your portfolio over time.
Some investors buy fixed income securities like bonds, treasuries, or CDs in search of a stable income stream in the form of interest payments. Since the rate of interest remains the same on most fixed income securities until maturity, the purchasing power of the interest payments declines as inflation rises. As a result, bond prices tend to fall when inflation is increasing.
Those invested in stocks and equities may be seeking to review what they own, and why. Some may find that recent market growth and volatility has caused a shift in their portfolio mix, and a rebalance is necessary.
While many investors are insightful and observant enough to understand changes need to be made, this could be the moment to consider talking to a professional you can trust. Words like “transitory” don’t carry an actual timeframe with them, and it’s difficult to interpret if you should change your concentration to real assets like REITS or seeking inflation-adjusted bonds.
Inflation can be a cause for concern, but identifying the signs, evaluating your portfolio, and then making prudent adjustments could help you position yourself for growth into the future.
[i] https://news.marketcap.com/inflation-hits-record-high-in-kansas-city-fed-manufacturing-index/ [ii] https://www.msn.com/en-us/money/markets/fed-chair-powell-says-he-supports-starting-to-taper-bond-purchases-this-year/ar-AANOlin [iii] https://finance.yahoo.com/news/e-trade-study-reveals-wide-120500029.html [iv] https://www.msn.com/en-us/money/markets/fed-chair-powell-says-he-supports-starting-to-taper-bond-purchases-this-year/ar-AANOlin [v] https://finance.yahoo.com/news/e-trade-study-reveals-wide-120500029.html
