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Investing Specialists

Why Inflation May Overrun the Fed

Labor market tightening, housing shortages, and an eventual stabilization in commodity prices could move inflation sharply higher, upsetting the Fed's gradual strategy.

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It was another one of those weeks with lots of daily changes but little net change by the end. Most developed world markets were little changed for the week, running up early in the week before the Federal Reserve's interest-rate hike, then spending the rest of it worrying about the longer-term path for interest rates along with oil and commodity prices, which still haven't managed to find a bottom. Commodity indexes were down almost 2% on the week.

Emerging markets, which were anticipating the worst from the Fed, managed a healthy 3.8% gain for the week. Better economic data in China may also have helped boost the emerging markets. For the week, the U.S. 10-year Treasury rate increased from 2.14% to 2.20, having already anticipated the Fed's 0.25% short-term rate increase.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.