Despite the Fed's repeated assurances that price pressures are "transitory" (they've been saying that for what, three years now?), the data tells a different story. Last month's Consumer Price Index came in at 4.3% year-over-year — well above the Fed's 2% target.
And now we've got these tariff proposals hanging over us. I'm no economist, but even I know that tariffs generally lead to higher prices. Just look at what happened back in 2018-2019.
The market's clearly concerned. Treasury yields are falling (the 10-year is down to 4.23%, a drop of 0.59%), suggesting investors are seeking safety and potentially anticipating economic trouble ahead.
Meanwhile, gold — the traditional inflation hedge — keeps climbing. It hit $3,152.70 today, up 1.23%. I remember when it broke $2,000 back in 2020 and everyone thought that was astronomical!
The thing is, inflation isn't just a number in an economic report. I felt it yesterday when I filled up my car — $4.85 a gallon! And my monthly grocery bill has jumped from about $650 to nearly $800 for the same items compared to last year.
For investors, this creates a real dilemma. Stocks traditionally struggle in high-inflation environments, but keeping cash on the sidelines means watching its purchasing power erode.
I've been gradually increasing my allocation to Treasury Inflation-Protected Securities (TIPS) through the iShares TIPS Bond ETF (TIP), which is up a modest 2.1% year-to-date. Not exciting, but at least it's keeping pace with inflation.
The big question on everyone's mind: Will the Fed actually cut rates this year as they've hinted? With inflation still stubborn and these tariff concerns looming, I'm not holding my breath.
But then again, I've been wrong before. Just ask my portfolio.
