Inflation Nation (Last of a Series)

“We are in a new era with the Fed. They have a new reaction function…[and] this is their first trip around the track with it.” – Anne Mathias, senior strategist, Vanguard.

Inflation, or the threat of it, presents challenges for both regulators and investors.

Higher inflation generally impacts fixed income assets negatively as increased rates erode bond values. Public equities, on the other hand, respond to the growth aspects of inflation positively. Last week’s commentary from Natixis’ chief US economist identified how well some commodities have fared in this environment.

Brian Nick, Nuveen’s chief investment strategist, spoke recently to us on the investment implications of higher-than-expected inflation. “TIPS breakevens are pricing in higher inflation expectations in the short-term, with the breakeven curve still inverted. But longer-term nominal rates remain below their March peaks.