Inflation will worry but not derail financial markets

Significance

The US Federal Reserve (Fed) is largely unperturbed by rising inflation. Bond markets concur, but some investors fear that this could prove complacent -- and costly.

Impacts

• The price of bitcoin fell by 30% since mid-April to USD20,000, partly due to doubts of whether the token is maturing into a stable asset.
• US banking stocks have surged by over 70% since the vaccine breakthrough on average; strong first-quarter earnings will fuel further upside.
• Markets have confidence in the Fed, but investors’ fears of a more sustained increase in prices, and of the Fed falling behind, will rise.