Repricing – Financial Markets – Week 2

Inflation Will Come Back

The official inflation rate for the month of January 2018 was 0.5% which if continued for the year would be 6%. Inflation rates typically vary greatly from month to month, so the probability of an annual inflation rate of 6% in 2018 is quite small.

However, the financial markets recognize that Quantitative Easing (QE) is going to be discontinued thereby removing some growth from the global economy. But the USA could see inflation because of rapid economic growth and a weaker dollar. As a result, US 10-year treasury bonds in mid-February increased to the highest yield set in four years, approximately 2.9%.

That interest rate is still amazingly low from a historical perspective. But the change is significant enough to affect the valuations of stocks and put a scare into the financial markets. Expect more volatility as repricing courses throughout the economy and impacts all asset classes.