Partner Insight: US inflation could hit 2% a year ahead of schedule

Modest rate cuts would be justified in this scenario, says US investment giant

Gareth Jones
clock • 1 min read
Partner Insight: US inflation could hit 2% a year ahead of schedule

The US Federal Reserve could reach its 2% inflation target as much as a year ahead of projections, according to the investment giant Capital Group.

Writing in a blog post, economist Jared Franz said shelter inflation, which includes rent and owners' equivalent rent, is falling and will likely continue to do so as rents flatten out or decline in many major cities.      

He also highlighted rebounding productivity in the US, slowing unit labour costs, and the moderating effect of China's economic troubles on US commodity prices.

"The net impact of these factors could be that we see core inflation at 2% by the end of next year," he said. "That would be a full year ahead of schedule and justify modest rate cuts."

An historic opportunity

Analysis by Capital Group suggests that historically, the end of a rate hiking cycle is good for fixed income. Looking at every sustained US rate hiking cycle since the 1980s, high-quality fixed income has, on average, provided stronger returns than cash-like investments.

Indeed, over a three-year time horizon, the gap between high-quality bonds and a cash-like investment came out at a cumulative 16%.

With this in mind, Capital Group's Ed Harrold will be joining an exclusive webinar on Thursday 16 November to discuss the opportunities presented by peak rates. Hosted by Investment Week, Professional Pensions and Professional Adviser, a panel of experts will consider:

  • What does the current interest rate trajectory mean for fixed income?
  • Where in fixed income should investors focus their attention?
  • How might things play out for different countries around the world?

Register now to join the discussion and ask your questions. More speakers will be announced soon.

 

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