The “reflation trade” that has dominated financial markets since the emergence of coronavirus vaccines last year has been pummelled after the Federal Reserve unexpectedly signalled a shift in its stance on inflation.

Commodity prices have tumbled while long-dated US government bond prices raced higher after Fed officials this week reacted to unexpectedly strong inflation data by moving forward their forecasts for when it might start raising interest rates. The dollar was headed for its best week since last September on Friday.

The Fed’s shift marks a major setback for investors who this year have rushed to buy securities that might benefit from faster inflation, betting that the combination of exceptionally easy monetary and fiscal policy and a global economy emerging from its Covid-19 lockdown would cause prices to spike.

The pivot from central bank officials has raised doubts about how much inflationary…

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