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Matthew Brooker

Know a Good Inflation Hedge? Tell Me, Please

Stocks and bonds both do badly at times of high and rising prices, real estate doesn’t hold its value, and commodities have already surged. There’s not much left.

At least you can drink it if the price goes down.

At least you can drink it if the price goes down.

Photographer: Damien Meyer/AFP/Getty Images

The search for havens from the worst inflation in four decades feels like it’s about to get a lot more real. The bad news is that the task isn’t looking at all easy or straightforward, at least for individual investors whose choices are confined to the standard asset classes and who rely on a traditional 60-40 portfolio mix of equities and bonds to weather the ups and downs of market cycles. If U.S. policy makers follow through on their aggressive tightening rhetoric, we could be in for some testing times.

The upsurge in U.S. consumer prices has long passed the point at which it could be considered temporary, yet the stock market has remained remarkably resilient. The benchmark S&P 500 was less than 6% off January’s record high as of Friday’s close. The trouble for investors betting that markets will ride out this bout of inflation without serious damage is that their confidence is part of the problem. Monetary policy works through financial conditions, and falling stock and bond prices tighten them, as Bill Dudley, former president of the Federal Reserve Bank of New York, wrote for Bloomberg Opinion last week. The longer markets remain buoyant, the higher the Fed may have to raise interest rates to achieve the desired result.