COTW: Inflation and the Stock Market

COTW: Inflation and the Stock Market

Recent guidance from the Fed suggesting they will tolerate higher inflation begs the question: when will inflation become a problem for the stock market? Aside from the tight relationship of inflation with bond prices (and yields), inflationary impulses are also generally bad for the stock market; however, that is largely because of how the Fed has tended to react to rising inflation.

Historically, inflation above 4% and rising is generally when it becomes a problem for the stock market (see chart call-out on top-right).

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