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U.S. inflation could hit 3% or 4% by mid-2022, veteran strategist warns

U.S. inflation could hit 3% or 4% by mid-2022, veteran strategist warns

April 22, 2021: -Many strategists believe that investors underestimate the outlook for consumer prices, including David Roche, president of investment firm Independent Strategy. On Wednesday, Roche told CNBC that the U.S. inflation rate, which stood at 2.6% in March from the previous year, could increase much higher.

“My view is that we will see inflation of around 3 or 4% by the mid of the coming year, and that is completely inconsistent with U.S. 10-year bond yields being at 1.6%. That yield could easily be twice of it, then you come to the crunch point that markets are going to experience,” he told CNBC.

“The reason prices will increase, and there are a couple of things, is that you’re going to end up with, and the huge demand as consumers spend the excess savings which they have accumulated,” he added.

Roche’s commented on the heightened discussion over the direction inflation will take. Increasing inflation is one of the huge concerns that currently face the market, as high prices will affect asset values and corporate margins and limit the buying capacity of the consumer.

U.S. Federal Reserve officials keep an eye on the inflation rate. The recent data shows the consumer price index rose 0.6% in March from the previous month and up 2.6% from a year earlier. Fed policymakers believe a rise is transitory. They say they have tools, like increasing interest rates, to combat it if it becomes a problem.

Roche said the Fed would be “behind the curve,” however. “It’s going to mistake what it calls transitory inflation and try and kind of gloss it over while effectively what it does is create a much longer-term inflationary problem,” he said.

Earlier this week, Richard Bernstein, CEO and CIO of Richard Bernstein Advisors told CNBC he saw a lot of denial about inflation risks, evidenced by how investors are positioned right now.

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