Why the Fed is wrong on inflation

The US Federal Reserve is counting on the headline rate of inflation coming down again soon. But, argues Niels Jensen of Absolute Return Partners, they're playing with fire.

The inflation debate is raging on either side of the Atlantic at the moment. Is the current spike in consumer price inflation (CPI) temporary or longer-lasting? The U.S. Federal Reserve Bank has stated unequivocally that the current state of affairs is not likely to be long-lasting. They expect the headline rate of inflation to come back down again over the course of the next year or so.

Central banks in Europe and Asia have taken a somewhat different view; hence investors in those markets should expect interest rates to go up for a while longer at least in the short term. But the Fed could be terribly wrong in their analysis. This is going to be one of the most important calls you have to make over the next year or two so much rides on the outcome.

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