uploads///Part  US Markets

These Assets Could Be Attractive If Fed Rethinks Inflation Course

By

Mar. 19 2019, Updated 3:18 p.m. ET

Fed’s inflation target

The Federal Reserve’s two main objectives are stabilizing prices and maximizing employment. The Fed’s inflation target has been 2% for a long time. Inflation, however, has been undershooting this target for a while. As reported by Bloomberg, the Fed’s vice chair, Richard Clarida, said that the Fed could now review its twin objectives. While it will not change its inflation target, Clarida mentioned that the Fed might consider introducing a strategy that could make up for periods of below-target inflation with periods of above-target price rises.

Article continues below advertisement

Goldman Sachs on Fed’s inflation target

As reported by CNBC, Goldman Sachs also believes that the Fed could let inflation run above its 2% target. This, it believes, could take the rate hike off the table. The Fed increases rates in a bid to tame inflation, but if it could tolerate a higher inflation figure, it could also do without a rate hike when the labor market is firm.

According to GS’s equity strategist, Ben Snider, “Our economists believe it is leaning toward adopting an average inflation targeting approach. If implemented, they believe this change would decrease the likelihood of further near-term policy tightening and lead to a small and gradual increase in both expected and realized price inflation.”

Goldman also stated that slightly higher inflation would be positive for stock (DIA) (IVV) valuations.

JP Morgan on the Fed and inflation

As reported by Bloomberg, J.P. Morgan (JPM), on the other hand, considers TIPS (Treasury inflation-protected securities) (TIP) and gold (GLD) as the best choices as a refuge from rising prices. JPM strategist John Norman said, “TIPS and gold seem like the most durable inflation hedges for a unique macro environment when the Fed’s reaction function isn’t the only regime change impacting real assets.”

JPM also likes gold (NUGT) (IAU), as the Fed could depress real yields to spur the economy (SPY) (VTI), undermining the dollar (UUP) (USDU).

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.