The Wall Street Journal's economics editor, David Wessel, writes in a column headlined 'What Would Milton Friedman Do Now?": "Markets anticipated low and falling inflation—until Mr. Bernanke began talking about QE2 in late August, a sign that markets believe Fed's bond-buying will boost inflation, as the Fed desires."
With gold prices rising to more than $1200 an ounce in July 2010 from below $800 an ounce in October 2008, it seems an overstatement to declare flatly that until late August markets anticipated low and falling inflation.
Here's an article from the Journal's own personal finance columnist back in October 2009: "Inflation-protected US government bonds are generally a great core holding for ordinary investors. That's especially true in uncertain times like these, when many worry that a spike in prices is just around the corner....TIPS have performed well this year—the sector is up around 9% since Jan. 1...inflation is a topic very much on investors' minds right now. Some fear that the vast amounts of federal stimulus money poured into the economy will eventually lead to devaluation of the dollar and skyrocketing prices. Indeed you can see some of that already in the slump in the value of the dollar and the rise of gold....Inflation fears are one reason many ordinary investors have been loading up on TIPS, pushing up the price of those bonds. According to Financial Research Corp., a Boston-based firm that tracks mutual funds, investors have poured about $20 billion into inflation-protected bond funds so far this year."
