TIPS for Inflation For Rogers Corporation Employees

With the current inflationary times and how it's affected many of our clients from Rogers Corporation, we think our Rogers Corporation clients will find this article particularly useful. In February 2018, Jerome Powell was appointed as Chair of the Board of Governors of the Federal Reserve System. He became the 16th chair to take over the helm of the world’s most influential central bank. ¹ Among other duties, he and the Fed governors are tasked with adjusting short-term interest rates to help control inflation in an effort to promote overall economic growth.

In recent years, inflation has remained low, which has allowed the Fed to maintain low, short-term interest rates. But some are concerned that the Fed’s interest rate policy may accelerate inflation in the future, and they are looking for investment opportunities that have the potential to react to higher interest rates.

A Few TIPS

Unlike conventional U.S. Treasury bonds, the principal amount of Treasury Inflation-Protected Securities, or “TIPS,” is adjusted when there are changes in the Consumer Price Index (CPI), which measures changes in inflation. When the CPI increases, a TIPS’s principal increases. If the CPI falls, the principal is reduced.

We think it's important that Rogers Corporation employees know this because the relationship between TIPS and the CPI can affect the amount of interest you are paid every six months as well as the amount you are paid when your TIPS matures. ²

We'd like our Rogers Corporation clients to remember, TIPS pay a fixed rate of interest. Since the fixed rate is applied to the adjusted principal, interest payments can vary from one period to the next.

When TIPS mature, the bondholder will receive either the adjusted principal or the original principal, whichever is greater. ^2,3

For our Rogers Corporation clients who are concerned about inflation – and expect short-term interest rates may increase – TIPS are an investment that may be worth considering. A close review of your overall strategy might also reveal other investment choices that may be appropriate in an environment of changing interest rates.

Inflation in Perspective

In recent years, the Consumer Price Index has bounced below 2.16%, its average rate for the past 20 years.

Source: USinflationcalculator.com, 2018

Featured Video

Articles you may find interesting:

8 Tenets of Choosing a Mutual Fund

Use of Escrow Accounts: Divorce

Section 303 Stock Redemption Buy-Sell Agreement

Medicare Open Enrollment Is Here: How Are Costs Changing for 2023?

2022 High Net Worth Tax Planning

Policy Roadmap

Section 179 Deductions

Learn About the Path to Retirement

Contemplating Change: 7 Key Factors When Considering a Transition from Your Company

How Are Workers Impacted by Inflation & Rising Interest Rates?

Lump-Sum vs Annuity and Rising Interest Rates

Advice for Retirees Trying to Survive a Bear Market

5 Most Important Things to do Before Leaving Your Company

Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)

Board of Governors of the Federal Reserve, 2018.

The interest income from a Treasury Inflation-Protected Security (TIPS) is exempt from state and local taxes. However, according to current tax law, it is subjected to federal income tax.

Adjustments in principal are taxed as interest in the year the adjustment occurs even though the principal adjustment is not received by the bondholder until maturity. Individuals should consider their ability to pay the current taxes before investing.
TreasuryDirect.gov, 2018