Are the markets ignoring the possibility of higher inflation?
With the U.S. economy continuing to recover from the COVID-19 pandemic, investors are starting to worry about the possibility of higher inflation. The Federal Reserve has taken a number of steps to stimulate the economy, including keeping interest rates near zero, and this could lead to a rise in prices. Despite this, the markets appear to be largely ignoring the potential for higher inflation.
The stock market has been on a tear since the start of 2021, with the S&P 500 having gained more than 12% since the start of the year. This has been driven by strong corporate earnings and the growing optimism of an economic recovery. Despite the potential for higher inflation, investors appear to be more focused on the potential for continued economic growth.
The bond market is also largely ignoring the possibility of higher inflation. The yield on the 10-year Treasury note has remained relatively steady since the start of the year, despite the Fed’s efforts to stimulate the economy. This suggests that investors are not too worried about the potential for higher inflation.
The reason for the market’s lack of concern over inflation could be due to a number of factors. For one, the Fed has made it clear that it is not planning to raise interest rates anytime soon. This means that investors are not expecting the central bank to take action to combat inflation. Furthermore, some analysts believe that the current level of inflation is due to temporary factors and that it will eventually subside.
It is impossible to predict the future, so it is impossible to know whether the markets are right to ignore the possibility of higher inflation. However, it is clear that investors are not too worried about the potential for higher prices. This could be a sign that the markets are confident that the economy will continue to grow, despite the potential for higher inflation.