|Bid||47.83 x 1100|
|Ask||49.76 x 1000|
|Day's Range||48.72 - 48.76|
|52 Week Range||48.52 - 49.66|
|PE Ratio (TTM)||N/A|
|Expense Ratio (net)||0.06%|
Shutterstock These exchange-traded funds own Treasury Inflation-Protected Securities. After years of strenuous effort from the Federal Reserve, inflation is back. To cope, you could move some of your fixed-income money into funds that own inflation-protected bonds from the U.
The FOMC’s June statement was released on June 13, and the outlook for inflation remained upbeat. The highlight of the comments on inflation was the statement from FOMC Chair Jerome Powell, who said that he was not ready to declare victory on inflation. The statement indicated that on a 12-month basis, both inflation (CPI) and core inflation (which excludes food and energy) moved closer to the symmetric inflation (TIP) target, while the indicators of long-term inflation (VTIP) remained unchanged.
In its June FOMC meeting, the Federal Reserve increased the federal funds rate by 25 basis points and also released upgraded economic projections through its SEP (Summary of Economic Projections) report. Members’ projections for US economic growth, inflation (TIP), unemployment, and the federal funds rate are reported in the SEP report.
The US Federal Reserve has a dual mandate of achieving maximum employment and stable prices (TIP) in the economy. In recent months, the US unemployment rate has moved to multiyear lows, and it looks set to fall further, as there are more jobs available than the number of job seekers, according to the recent Job Openings and Labor Turnover Survey. The strengthening of the job market was acknowledged in the June FOMC statement, and it remained the key reason for the Fed to comfortably tighten policy.
The Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index (or PCE), has remained below the 2.0% target for more than six years. The stubbornly low inflation (TIP) level has left the Fed members searching for reasons to explain the inability of inflation (VTIP) to tick higher, despite the increase in wages, low unemployment, and near-zero interest rates. Lower inflation growth was the primary reason that the Fed increased interest rates at a snail’s pace in 2015 and 2016, with only one rate hike per year.
With interest rates on the rise, bond values, REITs and dividend-paying stocks have all been pressured lower as a means of adjusting for the prevailing interest rates of the day. It’s one reason why Treasury Inflation-Protected Securities, or TIPS for short is worth a look. Another reason is that, with the inflation outlook being largely uncertain there’s no end in sight to the frustration.
Personal consumption expenditure (or PCE), as defined by the Bureau of Economic Analysis (or BEA), is the value of the goods and services purchased by, or on behalf of, persons who reside in the United States. The Fed has a dual mandate of maintaining a low unemployment level and a steady price level in the economy. With US unemployment levels falling to a multi-decade low, inflation (VTIP) reaching 2.0% is the only unachieved target that is forcing the Fed to maintain an accommodative monetary policy.
The FOMC’s May meeting minutes indicated that some of its members had turned bearish on inflation (TIP). This information played a major role in changing investor’s assessment of the Fed’s plan for future rate hikes. If members feel that inflation can’t sustain above 2%, there’s the chance that they could limit the number of rate hikes going forward.
The most recent FOMC meeting was on May 1–2. The decision to leave the rate unchanged had been expected by the markets, but the FOMC used the meeting to announce a likely rate hike in June. FOMC meeting minutes are usually released three weeks after an FOMC meeting.
The US dollar depreciated against its major trading-partner currencies after the Bureau of Labor Statistics reported on May 10 that US consumer prices grew 0.1% in April after falling 0.1% in March. The core consumer price index, which excludes volatile food and energy prices, rose 0.2%, marking a 2.1% year-over-year increase. The US dollar (UUP) fell after this report, as a slower rate of inflation (TIP) growth could mean a slower pace of rate hikes. In a developed economy, higher interest rates boost the currency. On May 10, the US dollar (USDU) index closed at 92.5. It appreciated by 0. ...
US bond market investors were relieved after the US Bureau of Labor Statistics’ April report, published May 10, indicated a lower-than-expected inflation growth rate. The latest inflation (VTIP) report indicated that core inflation increased at a slower pace of 0.1% in April, boosting hopes for a slower pace of rate hikes from the Fed. At its May meeting, the Fed stated that it would continue tightening and inflation (TDTT) would reach 2% in future months. The decline in bond yields after the disappointing jobs and inflation reports could be temporary, as inflation expectations may be fueled by higher crude prices.
US indexes (SPY) are reaching highs as investors ignore possible threats of the US pull-out from the Iran nuclear deal and focus on increasing crude prices. Markets have been driven higher by surging energy company stocks (XLE), which are expected to reap the benefits of higher crude oil prices. On May 10, the Bureau of Labor Statistics’ inflation (TIP) report gave investors another reason to pile on risk, with April inflation growth coming in below expectations, at 0.1%.
On May 10, the Bureau of Labor Statistics reported that US consumer prices rose 0.2% in April. In contrast, they fell 0.1% in March. The April growth kept the uptrend in inflation (TIP) growth intact. Over the last 12 months, US inflation has grown 2.5%, a steep increase from the 1.6% growth recorded in June 2017. Core inflation (VTIP), which excludes volatile food and energy prices, rose just 0.1%, the slowest growth since November 2017. Over the last 12 months, core inflation has grown 2.1%, above the 2% target rate set by the Fed.
The Bureau of Labor Statistics (or BLS) released the “Job Openings and Labor Turnover Survey” (or JOLTS) data for March on May 8. The BLS collects the data through a monthly survey of nearly 16,000 employers in the government, private (XLI), and non-farm sectors. The survey measures new employees hired, employees who have quit, employees who have been asked to leave, and other job separations.
The Bureau of Economic Analysis defines PCE (personal consumption expenditure) as the value of goods and services purchased by, or on behalf of, US residents. The Fed prefers this inflation (CPI) measure to assess price levels, as it reflects actual price increases for consumers.
The ADP March employment report was published on May 2. The report offered deeper insight into employment trends across different sectors in the US employment market. ADP and Moody’s Analytics prepared the monthly report.
The Bureau of Economic Analysis (or BEA) released its first estimate for 1Q18 real GDP on Friday. This reading was above the consensus estimate for a growth rate of 2% but below the 4Q17 real GDP growth rate of 2.9%. This positive surprise may have somewhat cemented the chances for three more rate hikes in 2018, and the Fed has no reason to back off from additional rate hikes this year.
The primary reason cited by the FOMC (Federal Open Market Committee) for holding off on interest rate hikes since 2016 was lagging inflation growth. Whenever the Fed signaled rate hikes, the yield curve flattened since investors were not convinced that inflation (TIP) growth would pick up the pace, which would limit the Fed’s ability to raise rates. The Fed has set a target of 2% inflation (VTIP) growth, at which point the economy is expected to be running at a normal pace.
It’s difficult to pinpoint a single reason for changes to the yield curve’s slope. First, any changes to the Fed’s interest rate immediately impact the yield curve at the short end, and the projections for long-term rates dictate the changes at the long end of the curve. For instance, the recent rate hike at the Fed’s March meeting had varying impacts on the US Treasury yield curve.
The Bureau of Labor Statistics (or BLS) released the “Job Openings and Labor Turnover Survey” (or JOLTS) data for February on April 13. The data for this survey is collected by a monthly survey on job openings, the number of new employees hired, the number of employees who have quit, the number of employees asked to leave, and other job separations. The JOLTS report is an indication of the demand for workers in the United States.
The most recent inflation (VTIP) report indicated that core inflation moved closer to the Fed’s 2% target, which could translate into further rate hikes from the central bank. At its recent meeting, the Fed clearly stated that it would continue tightening if supported by economic data. If interest rates and inflation (SCHP) start rising, bond (BND) yields could rise in response and bond prices could fall. US bond yields were largely unaffected by the inflation report favoring higher rates.
On April 11, market participants expected a volatile session after the US inflation report, but, to their surprise, Donald Trump’s tweet earlier in the day about Syria and missiles pushed markets lower. Had there not been any geopolitical tensions, the market reaction could have been negative despite the lower headline number. A faster pace of rate hikes from the Fed may have contributed to the market performance that day. The Fed has been increasing interest (SCHP) rates at a slower pace in the last two years despite employment picking up, citing low inflation as the reason for its slower pace.
The US Bureau of Labor Statistics has reported that US consumer prices fell 0.1% in March. The labor department reported that the consumer price index fell 0.1% in March after rising 0.2% in February. Though the headline inflation (TIP) was lower than expected, core inflation (VTIP), which excludes volatile food and energy prices, rose 0.2% in March, marking a YoY (year-over-year) increase of 2.1%, above the Fed’s 2% target. This increase in core inflation, following strong growth by the producer price index in March, could translate to higher inflation in the coming months.
The March FOMC meeting minutes indicated that the staff and FOMC members turned bullish on inflation. According to the minutes, all of the FOMC members expected the 12-month inflation (TIP) to increase in the coming months. The FOMC staff review indicated that PCE (personal consumption expenditures) inflation remained below the 2% target.