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Editor s note: This article first appeared in the Q2 2021 issue of Morningstar magazine. Click here to subscribe. With interest rates at unprecedented low levels, bond markets are in uncharted territory. As bond market theories struggle to keep pace, asset allocators and income investors must adapt in real time. This is a particularly challenging climate for those who need to live off their investments.
The three panelists in this Morningstar Conversation bring three different perspectives. Michael Finke holds doctorates in both consumer sciences and finance and is professor of wealth management at the American College of Financial Services. Jonathan Guyton is a Certified Financial Planner who advises clients as a principal of Cornerstone Wealth Advisors and has been a retirement columnist for the Journal of Financial Planning since 2010. And Larry Siegel, who has a long background in practical investment analysis, serves as the Gary P. Brinson Director of Research a
Long ignored in our recent low-inflation world, Treasury Inflation-Protected Securities (TIPS) are still one of the best instruments for fighting rising prices.
<p><span>It is a pleasure to join the Economic Club of New York for this discussion.</span><a href="https://www.federalreserve.gov/newsevents/speech/brainard20210601a.htm#fn1" title="footnote 1"><span>1</span></a><a name="f1"></a><span> Consumer demand is strong, vaccine coverage is expanding, and pandemic-affected sectors are reopening in fits and starts. As was the pandemic shutdown with its ebbs and flows, the reopening is without precedent, and it is generating supply–demand mismatches at the sectoral level that are temporary in nature. Separating signal from noise in the high-frequency data may be challenging for a stretch. The supply–demand mismatches at the sectoral level are making it difficult to precisely assess inflationary developments and the amount of resource slack from month to month.</span></p>
Our work suggests that U.S. economic prospects continue to brighten. Higher long-term interest rates currently reflect the market’s expectations for faster economic growth and somewhat higher inflation.