Economy to Slow, Warding Off Inflation

FORT WORTH, Texas ( TheStreet) -- The economy is set to slow in the second half of this year, keeping a lid on inflation, which will pick up in about 18 months, says Kirk Brown, who helps manage the American Beacon TIPS Fund ( ATPIX).

The $198 million mutual fund has returned 3.2% this year, trailing the peer average of 4.1%. Over the past year, the American Beacon TIPS Fund has risen 8.6%

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What are your expectations for the economy in the second half?

Brown: We expect slower growth than in the first half. The government will be pulling back its bond purchases, as well as removing some of the fiscal stimulus packages. So we think this will set us up for a second-half slowdown.

When do you think inflation is going to become a big factor in America?

Brown:It's going to be at least 18 months. You have very low capacity utilization, and unemployment is still very high at 10%. The people working at their jobs now are seeing low wage increases. So it's going to take a while before inflation hits us.

Are investors getting enough yield on their TIPS now?

Brown: TIPS are attractive. And will be even more so when inflation picks up a year from now.

What does the skyrocketing price of gold say about inflation?

Brown:There are a couple factors with gold. First, it has been a momentum play. People look at gold, and they see it going up, so they pile in. Also, you have the concern with Greece, and the contagion going through the rest of Europe. So those two factors have helped gold. Gold's rise is less about inflation than momentum and Europe.

How much longer can the Federal Reserve keep buying Treasuries to influence bond yields?

Brown: As long as they need to. They fear the double dip, given what happened two years ago. There's such a fear about what would have happened within the financial system. They're going to do everything in their power to ensure that it does not get repeated. And part of that is buying bonds, keeping rates low and getting the fed funds rate low.

-- Reported by Gregg Greenberg in New York.

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Before joining, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.