Recovery economic recovery may trigger inflation
It depends on the central bank
Buying experts look at buying opportunities
The return of the US economy to normalcy after the Corona crisis is unlikely to be without impacts on inflation, coupled with massive stimuli from the government and monetary authorities. Christopher Wood cites this as the “classic recipe” for rising inflation if demand continues to rise following a supply shock. “That’s why American investors must be prepared for the biggest inflation scare since the economy reopened in the early 1980s,” Jefferies’ top stock strategist warned.
Will inflation rise only in the short term?
Whether this creates risk for investors depends primarily on how long inflation has been high and how the US Federal Reserve is reacting to it.
As Brian Nick, Nuvin’s chief investment strategist, explained in an interview with “Marketwatch”, a short-term inflation fear is due to the recent rise in commodity prices, the decline in supply and the underlying effects. The latter means that prices will increase significantly compared to the previous year, but only because it will return to the pre-crisis level.
The central bank wants to rest Monetary policy Maintained
The US Federal Reserve has already signaled that it is not afraid of long-term high inflation and therefore wants to keep money locks open for longer.
At an online event hosted by the Economic Club of Washington in mid-March, US Federal Reserve Chairman Jerome Powell explained that he would like to wait until inflation rises above two percent and that full employment will reach full employment before changing its monetary policy. Such a situation is unlikely to exist by the end of 2022. He pointed out that he was one of the most federal members Rate increase Not expected before 2024. However, Powell said this was not the forecast of the Monetary Policy Committee (FOMC).
In late August, the central bank decided that the inflation target should be averaging only two percent in the future, in order to create more room for maneuvering in monetary policy. According to this new model known as the “average inflation target”, if the inflation rate has been longer than this target value in the future, the inflation rate in the future may be kept above the 2 percent target for some time. Taking past inflation into account is new – so far there is only one goal towards the future.
This new policy will significantly delay the exit of US monetary authorities from their current extreme loose monetary policy because, thanks to their changed strategy, the central bank will no longer be pressured to intervene quickly if inflation is to rise in the future.
But despite reports from the central bank, there are voices in the market warning that the rise in inflation could be short-lived and that monetary authorities will not sit idly by, according to MarketWatch. In the event of a prolonged sharp rise in prices.
But even this uncertainty about the behavior of the central bank will turn out to be in favor of the investor. According to Christina Hooper, Invesco’s chief global market strategist, this will open up strategic buying opportunities for long – term investors. He believes Fed President Powell will intervene if market disruptions occur, the “Marketwatch” reports.
Brian Nick also sees opportunities for investors: he believes better economic data and more success in vaccinating people will benefit rotating stocks. This means that the central bank has not completely abandoned its promise of a stable monetary policy and will move forward in a market-friendly manner if it decides to raise interest rates.