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Are You Prepared to Battle Inflation? |
An increasing number of economists and market analysts are starting to voice their concerns that rising inflation is just around the corner. The Federal Reserve has pumped a jaw-dropping amount of money into the economy to stabilize the financial and credit markets, and many fear the Fed will not be able to act quickly enough to pull that money back out of the economy before the scales tip and inflation takes off.
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Essential Reading for Traders
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| | So who is responsible for keeping inflation at bay, how can you monitor expected inflation rates and what can you do in your portfolio to take advantage of rising inflation? Let's take a look.
Goals of the Federal Reserve
The Federal Reserve is tasked with monitoring inflation and taking the appropriate monetary actions to reduce inflation if it rises above a certain level. Currently, the Fed has said it is comfortable with a two percent inflation rate. | | | | | | Monitoring Inflation with the TIPS Spread
You can monitor inflation rates by watching indicators such as the Consumer Price Index (CPI). But if you want to know what the market's expectations for inflation are, you should watch an indicator like the TIPS Spread. | | | | | | Combatting Inflation with Treasury Inflation Protection Securities (TIPS)
As you monitor inflation with the TIPS Spread, you can also consider fighting inflation with Treasury Inflation Protection Securities (TIPS). TIPS adjust their returns to compensate for the effects of inflation. As inflation rises, TIPS pay more money. | | | | | | More...
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