If the Fed raises rates too quickly, it could raise deflationary pressures, which could send the economy into a spiraling decline as cash becomes more valuable, prices continue to fall and Americans withhold spending to buy something cheaper tomorrow. [ETFs for a Deflationary Period]
The Fed is targeting an inflation rate of about 2%. Additionally, looking at the Fed’s preferred inflation gauge, the Commerce Department’s consumption expenditure price index, inflation has undershot 2% for over two-and-a-half years.
Enthusiasm for TIPS remains tepid. Barron’s highlighted “Thursday’s 10-year TIPS auction was surprisingly weak, showing just how little interest investors have in these securities right now. Thomas Simons of Jefferies called it, ‘a pretty ugly auction.’”
iShares TIPS Bond ETF