This Inflation is not Transitory

This past Monday, Steve Liesman of CNBC interviewed Boston Federal Reserve Governor Eric Rosengren about the state of the economy. ๐Ÿ’ฒ
Rosegren stated he believed higher inflation rates in the U.S. economy are “transitory” or temporary. This echoed previous statements by Chairman Jerome Powell.
When Rosengren was asked “when do you support raising interest rates?” he responded that “we need to see inflation consistently above 2% next year before we consider raising rates.” ๐Ÿ‘†
When our central bank holds interest rates near 0%, that is a major factor in increased inflation. Investors pile into stocks, businesses take out low-rate loans, and consumers buy goods and services at 0% financing. Low interest rates have contributed significantly to the inflation in home prices. ๐Ÿก
Federal Reserve governors know this, and that’s why Rosengren stated he would need to see inflation above 2% next year in order to raise rates.
However, this contradicts his earlier statement. ๐Ÿ”Ž
If Rosengren needs to see inflation consistently above 2% next year, this says nothing about controlling inflation this year. So even though the current inflation rate of 5.4% is well above Rosengren’s 2% target, he’s going to do nothing about it until next year.
This means the inflation we are experiencing is anything but transitory. ๐Ÿ”ฅ
This also means investing in inflation resistant assets is still important. ๐Ÿ’ช
We’ve discussed some examples previously: agriculture, energy, precious metals, commodities, and real estate.
However, let’s look at a few more areas that may prove well during inflationary times.
1. Healthcare. ๐Ÿ‘ฉโ€โš•๏ธ๐Ÿ‘จโ€โš•๏ธ
The uncertainty surrounding the lingering effects of COVID-19 has boosted the value of healthcare businesses. However, even in the absence of a pandemic, healthcare can increase in value. Inflation tends to further impoverish the lower and middle-class, and it can lead to higher unemployment. During times like this, people prioritize healthcare over other types of spending.
2. Real Estate Investment Trusts (REIT). ๐Ÿ™
If you don’t have enough money for a down payment on a home or investment property, you can invest in a REIT. These are diversified funds that enable you to own some real estate and earn some rental income without needing a large amount of cash upfront.
3. Foreign Stocks. ๐ŸŒ
We’ve discussed this briefly before, but I want to re-emphasize the importance of being globally diversified. It’s a good idea to own some non-U.S. businesses, especially manufacturing. Many of these companies pay dividends in foreign currencies. These dividends will retain their purchasing power if we have a sharp drop in the value of the dollar. ๐Ÿ‘‡
Let’s continue to stay on track with your financial goals for this year! If you have a question or comment, please respond to this post.
Have a great weekend, and I’ll talk to you again soon!

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