And it worked!īut here is where inflation concerns come into the picture. On the fiscal side, Congress provided people with direct stimulus checks to replace lost wages or, for those still employed, boost spending and investment. On the monetary side, the Federal Reserve created huge sums of new money while lowering interest rates both to encourage borrowing and to discourage leaving money in savings. government used both monetary and fiscal measures to battle the deflation threat and reflate the economy. Deflation is generally viewed more negatively than inflation-at least moderate inflation- because it makes meeting debt obligations more difficult and it incents people to delay spending in anticipation of falling prices. The sudden sharp drop in consumer and business spending combined with falling financial markets threatened not only to push the economy into depression, but also to begin a period of deflation, or falling prices. At the pandemic’s beginning, policymakers viewed deflation, not inflation, as a major threat. Understanding why many investors are beginning to worry about inflation requires a review of the policy measures used to combat the negative financial effects of this past year’s pandemic. And the most prominent reason of late is rising prices, otherwise known as inflation. economy is projected to grow at its fastest rate in decades and corporate earnings are expected to increase by double-digit rates, it should come as no surprise that investors have found new reasons to worry. Beginning with panicked selling set off by the pandemic, the period ended with stock market indices sharply higher and many high-promise-but-no-earnings stocks reaching bubble-like valuations. The past 14 months illustrated that better than any period in recent memory. gold futures settled 0.4% lower at $1,792.1 an ounce.Investing is a never-ending struggle between worry and optimism. Gold held a tight range on uncertainty over the Fed's tapering timeline. West Texas Intermediate (WTI) crude rose $1.58, or 2.3%, to $69.72. supplies after Hurricane Ida hit output.īrent crude rose to settle at $1.47, or 2.3%, to $72.92. Oil rallied to $73 a barrel on signs of tight U.S. inflation data.Įlsewhere in currencies, the pound fell 0.01% despite data showing the British economic recovery slowed in July. The yield on benchmark 10-year Treasury notes rose after the U.S. The euro was last down 0.12 percent, at $1.1811, while Europe's broad FTSEurofirst 300 index (.FTEU3) dropped 0.23 percent at 1,796.26. "In currencies, we think going long GBP and NOK and short EUR and CHF should provide a mid- to high-single-digit percentage upside on a total return basis over the next six to 12 months."Īgainst the broader risk-on backdrop, and despite persistent concerns around COVID infection rates, the greenback was up 0.1% against a basket of major peers. And while this complicates the search for yield, we continue to see opportunities," he wrote in a note to clients. "This is positive for equity markets, particularly cyclical and value areas of the market. inflation print could help dictate near-term market direction.ĭespite the prospect of reduced stimulus packages, Mark Haefele, chief investment officer at UBS Global Wealth Management, said he expected central banks to keep interest rates low. Looking ahead, Dowding said next week's U.S. "With the ECB raising its economic projections for 2022 and beyond, it appears that the high-water mark in policy accommodation has been passed," said Mark Dowding, chief investment officer at BlueBay Asset Management. Thursday's move by the ECB to trim bond purchases slightly is expected to be followed by the Fed later this year, according to some officials, despite a weak August U.S.
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