cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
Explorer ○

Fed Policy and TIPS

I did a quick search to see if this topic has been discussed and I didn't see anything.  Sorry if I missed any discussion.  

Have any of you seen news reports of the Fed changing how it views inflation?  For example:

https://www.cnbc.com/2020/08/24/powell-set-to-deliver-profoundly-consequential-speech-changing-how-t...

This suggests that TIPS might be attractive for an intermediate term, perhaps 5-7 years.  Do you disagree?  If so, please elaborate why.  This would be a T-IRA and/or 401k holding.  The funds would not come from equity; it would be a reallocation from regular government securities holdings.   

0 Kudos
7 Replies
Highlighted
Frequent Contributor

Re: Fed Policy and TIPS


@DillonVizsla wrote:

I did a quick search to see if this topic has been discussed and I didn't see anything.  Sorry if I missed any discussion.  

Have any of you seen news reports of the Fed changing how it views inflation?  For example:

https://www.cnbc.com/2020/08/24/powell-set-to-deliver-profoundly-consequential-speech-changing-how-t...

This suggests that TIPS might be attractive for an intermediate term, perhaps 5-7 years.  Do you disagree?  If so, please elaborate why.  This would be a T-IRA and/or 401k holding.  The funds would not come from equity; it would be a reallocation from regular government securities holdings.   


Why would the change make TIPs attractive? FED Unsuccessfully tried for 8 years, 2012-2020, to raise inflation rate to 2% but never got there. Feb 2020 inflation rate was 1.8%. In July 12 month inflation rate was 1%. All fed did was change its guidance to state that it would no longer raise the interest rate to deter a possible future increase in inflation Above its benchmark. Instead the fed will allow inflation to exceed the target and then raise rates when some average inflation rate above the target occurs. It’s the fed version of waiting for Godot.

Fixed income investments will continue to Under perform because the fed will keep interest rates lower for the foreseeable future in order to stimulate growth in the economy. If you want growth invest in equities.

0 Kudos
Highlighted
Frequent Contributor

Re: Fed Policy and TIPS

I would not hold lots of Gov and/or TIPS bonds.  Gov bonds pay too little and there is no inflation in sight. At a minimum I would hold BIV instead, about 50/50 treasuries/Corp bonds.

0 Kudos
Highlighted
Explorer ○

Re: Fed Policy and TIPS

Thanks Intruder.  I understand your point that inflation has been very low over the last decade, but can anyone predict that it will be low over the next 5-7 or even 10 years?  No one knows.  

0 Kudos
Highlighted
Explorer ○

Re: Fed Policy and TIPS

Thanks FD1001.  My holding period is longer term, so even though inflation isn't predicted over the near term, it could be realized over a longer time period.  If not, please explain why.  

0 Kudos
Highlighted
Frequent Contributor

Re: Fed Policy and TIPS


@DillonVizsla wrote:

Thanks Intruder.  I understand your point that inflation has been very low over the last decade, but can anyone predict that it will be low over the next 5-7 or even 10 years?  No one knows.  


And just what is going to drive inflation? Fed poured $3T into the economy beginning 2009 but inflation never went above 1.9%. Inflation is 1% over the last 12 months , unemployment is 10% and GDP for 2020 is forecast at -6.5%. 
Reason inflation will remain low is that productivity will continue to increase which will reduce costs. Companies like Walmart and AMZN continue to increase sales by lowering prices and expanding operations which increase revenue.

0 Kudos
Highlighted
Frequent Contributor

Re: Fed Policy and TIPS


@DillonVizsla wrote:

Thanks FD1001.  My holding period is longer term, so even though inflation isn't predicted over the near term, it could be realized over a longer time period.  If not, please explain why.  


My post was about LT.  Intruder explained it.

0 Kudos
Highlighted
Frequent Contributor

Re: Fed Policy and TIPS


@DillonVizsla wrote:

Thanks Intruder.  I understand your point that inflation has been very low over the last decade, but can anyone predict that it will be low over the next 5-7 or even 10 years?  No one knows.  


I am not betting on it being above 2% in 7-10 years because I don’t see GDP Going above 2.5%.

 

0 Kudos
Announcements