“Inflation is coming!” We’ve heard it for what seems to be forever. Then came the report of the March leading economic index for March. It increased by 0.8% after rising 0.5% in February. It’s just the latest data point in a series of indicators that Hugh Johnson of Hugh Johnson Advisors says is evidence that this time inflation really is coming.
“We’re not talking about 3% or even 4% inflation,” Johnson told Breakout, “but we are talking about inflation rates as measured by the consumer price index of say 2.1% in 2014 and 2.3% in 2015. That’s stronger than the consensus and certainly stronger than Janet Yellen thinks is on the way.”
So what does that mean for Yellen and a Fed who have kept rates effectively at zero for as long as many young investors can recall?
I think when you get to about the middle of 2015...you’re gonna start to see unemployment rate which are gonna be very low, somewhere around 6%, you’re gonna see inflation rates as I mentioned are gonna be a little bit higher and that’s when the Federal Reserve is gonna consider very seriously about raising it’s target for the federal funds rate from the 0-25 basis points to as much as the 25-50 basis point range.
That would force interest rates across the board higher, including the 10-year treasury Johnson notes.
Even is he’s right Johnson cautions investors not to radically alter their portfolios.
“Interest rates are still going to be historically low at this level...it’s not going to derail the bull market,” he says before reiterating investors should stay in stocks here.
Yes inflation may finally start to become a problem, but not a big one according to Johnson.