FACT OF THE WEEK
On March 17, 1601, the first recorded parade honoring the Catholic feast day of St. Patrick, the patron saint of Ireland, was held in what is now St. Augustine, Florida.
Records show that a St. Patrick’s Day parade occurred on March 17, 1601, in what was then a Spanish colonial settlement under the direction of the colony’s Irish vicar, Ricardo Artur. More than a century later, homesick Irish soldiers serving in the English military marched in Boston in 1737 and in New York City on March 1762.
MARKET MINUTE
Middle East
Markets got a volatile start to the week, with stocks falling and oil prices rising as commercial maritime traffic heading out of the Persian Gulf through the Strait of Hormuz remained at a virtual standstill. But stocks rebounded late in the day after the White House said the conflict may end sooner than expected.
Stocks dropped at Tuesday’s opening bell, but mostly recovered after word spread that a group of countries, including the U.S., were considering a coordinated release of strategic oil reserves to counter supply disruptions. Markets generally went sideways midweek as news that the Consumer Price Index (CPI) held steady last month buoyed spirits.
As the week progressed, all three major averages fell, and oil prices hit all-time closing highs. Investors grew increasingly concerned over the impact of oil supply disruptions on the broader global economy, with the Strait of Hormuz remaining a concern. Bond yields rose as investors believed a prolonged conflict would keep oil prices high, increasing the chance of higher inflation.
Market sentiment continued to struggle as the week wrapped up, but declines slowed despite a downward revision to Q4 gross domestic product (GDP) growth.
Stubborn Inflation
With all the updates on the Middle East conflict, it was easy to miss other news last week.
Wednesday’s report that the CPI remained unchanged in February over the prior 12 months was good news. But it was the last bit of inflation data before the conflict in the Middle East began. Friday’s Personal Consumption & Expenditures Index, the Fed’s preferred inflation measure, showed that consumer prices remained sticky in January. Investors largely took this report in stride because delayed reports tend to lose their impact with time.
FINANCIAL STRATEGY OF THE WEEK
TIPS for Inflation
In February 2018, Jerome Powell was appointed as Chair of the Board of Governors of the Federal Reserve System. He became the 16th chair to take over the helm of the world’s most influential central bank. Among other duties, he and the Fed governors are tasked with adjusting short-term interest rates to help control inflation in an effort to promote overall economic growth.
Until 2021, inflation had remained relatively low, which had allowed the Fed to maintain an accommodative monetary policy. After the COVID-19 pandemic, the Fed increased short-term interest rates to combat high levels of inflation. More recently, the Fed has indicated that it will be keeping its eye on inflation to inform its monetary policy.
A Few TIPS
Unlike conventional U.S. Treasury bonds, the principal amount of Treasury Inflation-Protected Securities, or “TIPS,” is adjusted when there are changes in the Consumer Price Index (CPI), which measures changes in inflation. When the CPI increases, a TIPS’s principal increases. If the CPI falls, the principal is reduced.
The relationship between TIPS and the CPI can affect the amount of interest you are paid every six months, as well as the amount you are paid when your TIPS matures.
Remember, TIPS pay a fixed rate of interest. Since the fixed rate is applied to the adjusted principal, interest payments can vary from one period to the next. TIPS help manage inflation risk to your portfolio as the principal is adjusted semiannually for inflation based on the Consumer Price Index, while providing a real rate of return guaranteed by the U.S. Government.
When TIPS mature, the bondholder will receive either the adjusted principal or the original principal, whichever is greater.
If you are concerned about inflation – and expect short-term interest rates may increase – TIPS are an investment that may be worth considering. A close review of your overall strategy might also reveal other investment choices that may be appropriate in an environment of changing interest rates.
Inflation in Perspective
For the 20-year period ended 2024, the Consumer Price Index averaged a 2.6% inflation rate. While inflation peaked at 8% in 2022, it cooled to a 2.9% average in 2024.