The August Consumer Price Index (CPI) released last week was higher than expected, with an increase of 0.4% for the month versus an expected 0.3%. Inflation, or rather the lack of it, has been much discussed by central banks over the past few months and has driven central bank policies to lower interest rates to zero and below. This week, the Federal Reserve (Fed), Bank of England and Bank of Japan will all hold meetings. I expect each central bank to discuss revising the inflation targeting approach. As the central banks rethink policy tools and approaches, the potential is rising for increased inflation in future years. I anticipate monetary stimulus to continue to be plentiful into 2021.
Lastly, I expect fixed income securities to underperform equities in the coming months, with deficits and Fed policy pushing long Treasury rates higher.
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