With the Federal Reserve cutting rates, inflation hawks could finally breathe a sigh of relief. After hitting highs not seen since the 1980s, the central bank may have finally nipped the problem in the bud, sending inflationrates down to more comfortable levels, and interest rates have finally begun to decline.
But we may not want to celebrate just yet.
Inflation hasn’t gone away completely and may get worse in the quarters ahead. Thanks to the cuts themselves, coupled with other global factors such as the tariffs/trade war, investors may still want inflation protection, so Treasury Inflation-Protected Securities still have a place in your portfolio.
Not Out Of The Woods Just Yet
Fighting inflation has been a multi-year issue for investors and policymakers alike. Thanks to the pandemic and various factors, our wallets felt the brunt of inflationary pressures, withthe consumer price index (CPI) surging to 9.1% in June 2022, a number not seen since the 1980s, which kicked off one of the aggressive monetary tightening campaigns by the Federal Reserve since Paul Volcker.
And by and large, it’s worked. As the Fed funds rate hit 5.25% in July 2023, inflation has been trending lower, moving well below our recent 9% peak.
With that trend of lower inflation, the Fed paused and has now started to reduce interest rates. The central bank cut rates by 0.25% in September, and the latest FedWatch tools suggest that they will cut again at the end of October and again in December, which will bring the Fed’s fund rate down to just 3.75%. The problem is, inflation isn’t out of the woods, and now analysts have begun to question the Fed and its need to cut rates at all, because the Fed will cut rates not because of inflation, but because the labor market is starting to show some signs of stress. Jobless claims have started to pick up while hiring has slowed.
Inflation remains steady and is still well above the Fed’s 2% target, as this chart from Reuters highlights the steadfastness of inflation in recent months.
Source: Reuters
And if you notice, the tail end of that chart shows a slight uptick; in recent readings, inflation has started to rise. Analysts predict that the tariffs and global trade war are now starting to affect prices.
With those tariffs and the Fed’s cuts, analysts have now started to predict that inflation is about to get higher in the quarters ahead, perhaps much higher than investors are predicting. For example, asset manager Schroder’s now predicts that inflation will rise to 3.3% in 2026 based on the deteriorating tariff picture and the rising costs, and they are not alone. A variety of investment banks and analysts have started to raise their expectations as several factors weigh on the potential for high inflation in the new year. 1
TIPS Still Make Sense
So, on the one hand, we have a slowing economy, and on the other hand, we have rising inflationary pressures, which is a recipe for a tough slog for many portfolios, but it doesn’t have to be. One asset class still makes a ton of sense for investors in this environment, and that would be Treasury Inflation-Protected Securities (TIPS).
By design, TIPS allow investors to at least match rates of inflation because they have a reset to their principal values based on changes to the CPI. The basic math works like this: A $1,000 Treasury Inflation-Protected Security with a 1% coupon under a flat CPI would pay $10 in interest. If the CPI jumps by 2%, the TIPS adjusts its principal upward by 2% to reach $1020, and the 1% in coupon against that would be $10.20 in interest.
Complicating things further, TIPS trade on the secondary market, which changes their prices and yields. This works itself out in what’s called the so-called real yields. The real yield is the return after inflation or over inflation on a bond, and right now, the real yield on TIPS is still above normal averages.
Back in September, the Treasury offered $19 billion in a reopened 10-year TIPS that provided a real yield of 1.734%, above its initial issue and above the average 1% to 1.5% real yield of TIPS. That means investors looking at this bond would be guaranteed to beat inflation by 1.73% over the next ten years. While that isn’t as great as the 2%+ real yields seen a year ago, it’s still a deal for investors looking to protect their income and portfolio from inflation. 2
All in all, TIPS are a great way to collect a good yield today while potentially defeating inflationary pressures tomorrow.
Adding TIPS
Given that inflation has the potential to rise in the year ahead and currently offers a decent real yield, investors looking to protect their future income may want to purchase the bonds for their portfolios. As a treasury-issued security, there are a lot of ways to do just that.
You could buy them directly from the government at Treasury Direct for as little as $100. Likewise, any major brokerage platform with a bond desk could help you purchase them. Many investors will purchase a TIPS ladder, buying various maturities of the bonds to create a ladder of inflation-protected income across retirement.
Another choice could be ETFs. However, they aren’t the same as buying a TIPS security individually and tend to perform well in sudden spikes of inflation rather than produce years worth of inflation-protected cash flows.
TIPS ETFs
These funds were selected based on their exposure to Treasury Inflation-Protected Securities (TIPS). They are sorted by their YTD total return, which ranges from 2% to 3.5%. They have expenses between 0.03% and 0.20% and assets under management between $727M and $52B. They are currently yielding between 2.4% and 4%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| LTPZ | PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund | $727M | 3.5% | 3.5% | 0.20% | ETF | No |
| DFIP | Dimensional Inflation-Protected Securities ETF | $797M | 2.8% | 3.7% | 0.12% | ETF | Yes |
| TIP | iShares TIPS Bond ETF | $15.5B | 2.7% | 2.44% | 0.19% | ETF | No |
| SCHP | Schwab U.S. TIPS ETF | $11.3B | 2.5% | 2.9% | 0.03% | ETF | No |
| TIPX | SPDR Bloomberg 1-10 Year TIPS ETF | $1.37B | 2.4% | 3.5% | 0.15% | ETF | No |
| TDTT | FlexShares iBoxx 3-Year Target Duration TIPS Index Fund | $1.9B | 2.3% | 4% | 0.19% | ETF | No |
| VTIP | Vanguard Short-Term Inflation-Protected Securities Index Fund | $51.8B | 2% | 2.65% | 0.03% | ETF | No |
While the Fed has started to cut rates, inflation hasn’t yet begun to really drop, and in fact, it has the potential to rise. With that in mind, TIPS still make for a great asset to own. Ultimately, investors will be able to get a real yield that is still well above inflation and protect their portfolios from the force as the quarters go on.
Bottom Line
With the Fed cutting, many investors are thinking that inflation is over and done with, but it has the potential to come back with a vengeance as the tariffs and other trade issues take hold. With that, Treasury Inflation-Protected Securities make a ton of sense for the quarters ahead.
1 Schroders (September 2025). Fed cuts likely to fire up inflation in 2026
2 TIPS Watch (September 2025). 10-year TIPS reopening auction gets real yield of 1.734% to weak demand
