TIPS for Inflation: What Investors Should Know in 2026
Kevin Warsh was sworn in as the 17th Chair of the Federal Reserve on May 22, 2026, succeeding Jerome Powell. Alongside the Fed’s Board of Governors, Warsh is now responsible for setting short-term interest rate policy aimed at balancing inflation control with economic growth.
Inflation has been more volatile in 2026 than in prior years. After climbing to 4.2% in May, the annual inflation rate eased to 3.5% in June, according to the latest Bureau of Labor Statistics data. Core inflation, which excludes food and energy, has hovered near 2.6%–2.9% throughout the year. With inflation still running above the Fed’s long-term 2% target, some investors are looking for ways to help protect their portfolios against the risk of rising prices.
A Few Facts About TIPS
Unlike conventional U.S. Treasury bonds, the principal value of Treasury Inflation-Protected Securities (TIPS) adjusts with changes in the Consumer Price Index (CPI), the primary gauge of U.S. inflation. When the CPI rises, a TIPS bond’s principal increases. When the CPI falls, the principal decreases.
This CPI-linked adjustment affects two things:
- Semiannual interest payments — TIPS pay a fixed interest rate, but because that rate is applied to the adjusted principal, the dollar amount of each payment can vary over time.
- Value at maturity — When a TIPS bond matures, the bondholder receives either the inflation-adjusted principal or the original principal, whichever is greater.
That “greater of the two” feature means investors are protected from receiving less than their original investment at maturity, even in a period of deflation.
Why TIPS May Matter Now
With inflation readings fluctuating between roughly 2.4% and 4.2% so far in 2026, and interest rate policy under a new Fed Chair still taking shape, some investors are re-evaluating how prepared their portfolios are for continued price volatility. TIPS are one tool that may be worth discussing with a financial professional as part of a broader strategy for navigating changing interest rate and inflation environments.
A full review of your investment strategy can help identify whether TIPS, or other inflation-sensitive investments, make sense for your individual goals and risk tolerance.
Key Considerations Before Investing in TIPS
- Interest income from TIPS is exempt from state and local taxes but is subject to federal income tax.
- Principal adjustments are taxed as interest income in the year they occur — even though the adjusted principal isn’t paid out until the bond matures. This is sometimes referred to as “phantom income,” and investors should plan for the tax liability accordingly.
- TIPS are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, but market prices can still fluctuate before maturity.
Sources: Board of Governors of the Federal Reserve System, 2026; U.S. Bureau of Labor Statistics, 2026; TreasuryDirect.gov
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice and may not be used for the purpose of avoiding any federal tax penalties. Please consult a legal or tax professional regarding your individual situation. The opinions expressed and material provided are for general informational purposes only and should not be considered a solicitation for the purchase or sale of any security.
