Bondholders beware – inflation is coming, says Jeremy Siegel
With vaccines promising an end to lockdowns, inflation won't be far behind, warns Jeremy Siegel, professor of finance at Wharton.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Twice daily
MoneyWeek
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Four times a week
Look After My Bills
Sign up to our free money-saving newsletter, filled with the latest news and expert advice to help you find the best tips and deals for managing your bills. Start saving today!
Early last year, inflation seemed the last thing to worry about as the pandemic struck and oil prices fell below zero, writes Jeremy Siegel in the Financial Times. Siegel is best known for his 1994 book Stocks for the Long Run (in which he makes the case that long-term investors should buy and hold shares, rather than try to time the market).
After the 2008 crisis, central banks printed money but it flowed into asset prices rather than consumer prices. Today, the new money is not just going “into the excess reserves of the banking system. It is going directly into the bank accounts of individuals and firms” via various government support schemes. That will have a much more powerful impact.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
“I certainly do not expect hyperinflation, or even high single-digit inflation,” says Seigel. But he does expect it to breach the Federal Reserve’s 2% inflation target for “several years”, which “is not good for bondholders”. US Treasuries – government debt – pay a fixed income, so inflation will “erode the purchasing power of these bonds”, driving down prices. “The multitrillion dollar war on Covid-19 was not paid for by higher taxes... It will be the Treasury bondholder, through rising inflation, who will be paying for the unprecedented... stimulus over the past year.”
-
Should you buy an active ETF?ETFs are often mischaracterised as passive products, but they can be a convenient way to add active management to your portfolio
-
Power up your pension before 5 April – easy ways to save before the tax year endWith the end of the tax year looming, pension savers currently have a window to review and maximise what’s going into their retirement funds – we look at how
-
How a dovish Federal Reserve could affect youTrump’s pick for the US Federal Reserve is not so much of a yes-man as his rival, but interest rates will still come down quickly, says Cris Sholto Heaton
-
New Federal Reserve chair Kevin Warsh has his work cut outOpinion Kevin Warsh must make it clear that he, not Trump, is in charge at the Fed. If he doesn't, the US dollar and Treasury bills sell-off will start all over again
-
'Investors should brace for Trump’s great inflation'Opinion Donald Trump's actions against Federal Reserve chair Jerome Powell will likely stoke rising prices. Investors should prepare for the worst, says Matthew Lynn
-
'Governments are launching an assault on the independence of central banks'Opinion Say goodbye to the era of central bank orthodoxy and hello to the new era of central bank dependency, says Jeremy McKeown
-
Will Donald Trump sack Jerome Powell, the Federal Reserve chief?It seems clear that Trump would like to sack Jerome Powell if he could only find a constitutional cause. Why, and what would it mean for financial markets?
-
Do we need central banks, or is it time to privatise money?
Analysis Free banking is one alternative to central banks, but would switching to a radical new system be worth the risk?
-
Will turmoil in the Middle East trigger inflation?The risk of an escalating Middle East crisis continues to rise. Markets appear to be dismissing the prospect. Here's how investors can protect themselves.
-
Federal Reserve cuts US interest rates for the first time in more than four yearsPolicymakers at the US central bank also suggested rates would be cut further before the year is out
