Investing Specialists

How Much Inflation Protection Do You Need?

Christine Benz

In the wake of the financial crisis, many market watchers asserted that the combination of economic stimulus and the Federal Reserve's zero interest-rate policy would stoke inflation and in turn interest rates.

Seven years later, however, neither scenario has panned out. While concerns over rising interest rates and inflation sparked a sell-off in bonds--and a spike in demand for those with inflation protection--following the election, both interest rates and inflation remain quite low by historical standards. The yield on the 10-year Treasury bond, for example, is just 2.4%. Meanwhile, the most recent year-over-year read on the Consumer Price Index, through November 2016, shows inflation at 1.7%, well below the long-term historical averages of 2.5%-3%. Indeed, in my recent survey of what financial experts are expecting from various asset classes over the next decade, most said that they expected inflation to remain tame--a silver lining in a return forecast that was fairly muted overall.

Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.