The Federal Reserve will announce its latest monetary policy decision on Wednesday, though this announcement is widely expected to keep its interest rate policy unchanged in a range of 1.5%-1.75%.
According to Reuters, “The PCE price index was unchanged on a monthly basis after advancing 0.2 percent in February. Excluding the volatile food and energy components, the PCE price index soared 1.9 percent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 percent in February. The so-called core PCE price index rose 0.2 month-on-month in March after a similar gain in February.”
Inflation is Rising
Inflation is rising thanks to a tightening labor market and an increase in consumer spending.
U.S. consumer prices accelerated in the year to March, with a measure of underlying inflation surging to near the Federal Reserve’s 2 percent target.
The rise in the annual inflation measures reported by the Commerce Department on Monday were anticipated by economists and Fed officials and is not expected to alter the U.S. central bank’s gradual interest rate hikes.
Related: 3 Major Concerns as U.S. 10 Year Yields Test 3%
3 ETFs to Consider in an Inflationary Environment
Investors should be prepared for a higher inflationary environment and can utilize targeted ETF strategies to hedge against the negative effects of inflation.
- The IQ Real Return ETF (CPI) invests in a number of various ETFs, heding against inflation.
- The iShares Floating Rate Bond ETF (FLOT) is one of the largest ETFs dedicated to floating rate notes which limit the negative effects of rate risk.
- iShares TIPS Bond ETF (TIP) that tracks Treasury inflation protected securities offers investors another layer of diversification as many aggregate bond funds exclude TIPS from their holdings.
Economics and Inflation
The economics calendar will bring the monthly jobs report, which should show the U.S. economy continues to create jobs in the 10th year of the economic recovery.
“Economists expect the economy added 185,000 jobs in April, a rebound from March’s disappointing headline jobs gain while the unemployment rate is expected to drop to 4% after it held at 4.1% for a sixth-straight month in March,” according to Yahoo Finance.
Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting. The Fed raised rates last month and forecast at least two more rate hikes for this year.
For latest news on the Fed, visit our current affairs category.