The bond market remains skeptical that the current 7% inflation will be sustainable for a long period of time. After all, even in this environment, the US 10-year bond can barely get above 2%. However, we have to remember that there are non-economic players suppressing bond yields (central banks, foreign governments, and regulators).
But maybe, just maybe, that inflation will be sustainable. What might the Fed to reduce it? How high will they raise rates? How much quantitative easing might be undone? We are hearing hints of massive political pressure on the Fed to solve the "inflation" problem.
Here is a framework for thinking about more persistent inflation and the Fed's likely response.
As always, if you'd like to discuss what this means about your personal situation, you can reach me at 281-402-8284.
Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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