The current low inflation environment may be coming to an end following the Federal Reserve’s new inflation monitoring guidelines. According to their late-August announcement, the central bank’s new guidelines now allow inflation levels to range between an annual rate of 2.25% and 2.5% (instead of its longtime target of 2%) before considering raising interest rates to curb it.
The Fed’s recent change in policy is causing investors to consider assets that may benefit from higher inflation. To learn more about which investments are capable of offsetting potential inflation, U.S. News and World Report recently spoke with Principal Street Partners CEO James West.
According to West, there are two asset classes that typically perform well during times of inflation. “Anything where either the replacement costs are very sensitive to increases in inflation, or you have contractual provisions in the cash flows of those assets that go up,” he explains.
As a result, one asset that has the potential to earn a profit during inflationary times is real estate as rents, cash flow and the value of the real estate itself are historically known to increase. While investors who purchase individual pieces of real estate are poised to benefit the most, some publicly traded real estate investment trusts (REITs) can also rally – especially if the REIT is in an economic sector that is performing well.
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