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The Federal Reserve building in Washington, DC, United States, on August 22, 2018. Chris Wattie/Reuters/File Photo Reuters, NEW YORK, July 14 – Despite signs of inflation aplenty and a warning from the world’s largest asset manager that rising prices may be here to stay, a major portion of the market appears to be relying on an old adage: don’t fight the Fed. Treasury yields fell and stocks rose, with the S&P 500 (.SPX) setting a new high after Federal Reserve Chair Jerome Powell assured lawmakers that higher consumer prices would be temporary and that the central bank would not unwind its easy-money policies sooner than expected in remarks prepared for a congressional hearing on Wednesday. find out more The movements come despite consumer price data released on Tuesday showing that inflation rose for the third month in a row in June, indicating that some investors are warming to the Fed’s position on the recent inflationary increase. Another report released on Wednesday indicated that U.S. producer prices rose sharply in June, resulting in the greatest annual increase in more than 10-and-a-half years, while BlackRock CEO Larry Fink said earlier in the day that inflation will push the Fed to shift policy. find out more Powell is “sticking to script,” according to Paul Nolte, portfolio manager of Chicago-based Kingsview Investment Management. “When you say, ‘Hey, by the way, we’re going to pretty much keep things as they are,’ it takes the taper worry off the table,” Nolte explained. Since the epidemic, the Fed’s monetary assistance has been a vital pillar for markets, helping to boost the benchmark S&P 500 index to a 95 percent gain since March 2020. Signs of a faster-than-expected unwind, such as a reduction in the Fed’s bond-buying program, might cause market volatility. According to a recent survey of fund managers conducted by BofA Global Research, 70% of fund managers believe the recent increase in inflation is temporary, while 26% feel it will persist longer. “Inflation has substantially increased and will likely remain elevated in the coming months before declining,” Powell said, reiterating the Federal Reserve’s belief that recent price rises, despite concerns about unmoored inflation, are linked to the economy’s recovery and will be temporary. Powell is expected to testify before the Financial Services Committee of the US House of Representatives at 12 p.m. EDTStill, some investors expect that higher prices will last longer. In an interview with Reuters, Fink, CEO of the world’s largest asset manager BlackRock Inc (BLK.N), said: “I am not asking for 1970s inflation, but I do believe we will have inflation above 2%… possibly closer to 3.5 percent to 4.0 percent.” find out more “Is this a sign that the Federal Reserve will have to rethink its stance? Yes, I believe so.” Lewis Krauskopf contributed reporting, while Ira Iosebashvili and Andrea Ricci edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

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