“The prices of TIPS–which grow in value alongside inflation–have picked up amid signs the Fed won’t act immediately to tamp down price pressures that have picked up in recent months. In February, an index of consumer prices, minus food and energy, rose 2.3% from a year ago, marking a continued uptrend in inflation,” reports Ben Eisen for the Wall Street Journal.
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.
“In a record quarter investors have piled $2.14 billion into ETFs such as the iShares TIPS Bond ETF. Investors holding TIPS have been well rewarded this year. According to Markit’s iBoxx indices, TIPS have returned 4.2 percent so far this year, outperforming their more liquid non-inflation linked counterparts, treasuries,” said Markit in a research note.
iShares TIPS Bond ETF