Inflation scare breeds opportunity
TEXT OF INTERVIEW
SCOTT JAGOW: The bond market has certainly been a big concern the last few days. Investors are worried about signs of inflation and consequently higher interest rates. We turn now to our economics correspondent Chris Farrell. He's also our inflation skeptic. So Chris, have you changed your tune about the threat of inflation?
CHRIS FARRELL: Absolutely not. I would look at this as a buying opportunity with bonds, fixed-income securities. This inflation scare is just that: an inflation scare.
FARRELL: Let's just look at this, Scott. I mean the Fed is staying tight, right? They're not loosening. They're worried about inflation, they're staying tight. You have the central bankers around the world, what are they doing? They're tightening. Chinese central bank is tightening, the European central bank is tightening, I mean everybody is tightening. Well if central banks around the world are worried about inflation, and essentially are pursuing tighter monetary policies, that leads me to the logical conclusion that inflation is going to disappear. And by the way as rates go higher, that will also have a dampening impact on the inflationary environment.
JAGOW: But as you said, the Fed isn't really doing anything right now. Do you think it's going to join the party and raise rates?
FARRELL: No I don't think it will and a big reason for that is weakness in the housing market. I think what it'll do is stay stable. Central bankers elsewhere are raising their rates, the bond market vigilantes are doing their job, so there's no reason for the Fed to move.
JAGOW: But you think people should buy bonds right now?
FARRELL: Well I think it's kind of an intriguing time when you get these flurries and these fears of inflation which we've had several, several times, you know it's been an opportunity to add a little bit to your bonds and if there is an inflation it probably is a reasonable environment to own a higher-yielding security where you have no default risk, you have no credit risk and you will earn a real return above the rate of inflation. Will you earn a great return, I have no idea but you will earn a real return above the rate of inflation which is what you want with a fixed-income security.
JAGOW: Alright Chris Farrell thanks so much.
FARRELL: OK thanks a lot.
JAGOW: Our economics correspondent Chris Farrell.