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Treasury Inflation-Indexed Securities Provide Protection Against Inflation  


Author:  Walter J. Reinhart.; Kermit O. Keeling.


Source: Volume 21, Number 04, Summer 2004 , pp.350-358(9)




Journal of Taxation of Investments

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Abstract: 

While April showers bring May flowers is there a chance that as the US economy moves from a recession to a growth economy it will bring inflation? Monetary policy along with tax cuts have been accommodative and are helping the economy move to better times. As the liberal monetary policy remains in place the risk of inflation will rise. The Federal Reserve Board is faced with a balancing act of keeping a lid on inflation and at the same time avoiding policies that create an economic slowdown – especially in an election year. Even though the Consumer Price Index shows little signs of inflation other indicators, such as commodity prices (from oil to steel) are telling a different story. One challenge faced by investors as interest rates eventually rise in response to inflationary pressure is how they maintain value and purchasing power. Fortunately a straight forward and secure answer exists: Treasury Inflation Protected Securities (TIPS).

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Affiliations:  1: Loyola College Dept of Finance; 2: Loyola College Dept of Accounting.

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