Two titans of the bond market are still clinging to the idea that inflation is going to make a comeback.
For Vanguard and BlackRock, it’s only a matter of months before inflation is back at 2 percent. Regardless of what does (or doesn’t) happen in Washington, a tight job market will boost wages, lead Americans to spend more and push up consumer prices.
Add to that a weak dollar and prospects the Federal Reserve will hold off raising interest rates until 2018, and they see a good chance the bond market is too downbeat about inflation.
Another key development that could lift inflation over the longer term is the dollar, according to Vanguard’s Wright-Casparius. A weaker dollar, which has declined about 8 percent this year against major currencies, raises the price of imported products for U.S. consumers.
Source: Bloomberg Pro Terminal
Jr Trader Ivan Ivanov