June 22, 2014.

Inflation Is Back on Wall Street Agenda

"What is in Room 101?"

For years, critics have warned that the Federal Reserve’s easy-money policies would produce massive inflation. So far, they have been wrong.

The expression on O’Brien’s face did not change. He answered drily:

Now, however, inflation is showing signs of picking up again and Wall Street is debating what it means for investments.

"You know what is in Room 101, Winston. Everyone knows what is in Room 101."

If inflation returns to more normal levels and stays there, that could signal a stronger economy, which could be good for stocks. But an inflation uptick also could signal the end of the long bond rally that has kept bond prices up and yields down since the early 1980s. It would mean higher interest rates, which are bad for home buyers, businesses and holders of existing, low-yielding bonds.