How to invest in a high-inflation, high-interest-rate environment

The Federal Reserve has pushed interest rates to their highest level in two decades. The relevant investing question is not how high those will go, but where interest rates will settle once the Fed is done.

Chairman Jerome Powell is committed to bringing inflation down to 2%, but that’s no easy task. The Fed is negotiating stubborn, competing deflationary and inflationary forces.

COVID-era supply chain problems have been solved. China’s recovery is halting, factories are operating at less than full capacity and the yuan is down against the dollar. All of that should make importing from the Middle Kingdom cheaper.

Inflationary expectations, however, are hardening — the Conference Board, New York Federal Reserve Bank and University of Michigan surveys of one-year inflation expectations average about 4.3%.

Peter Morici

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