The 20’s have really started off with a bang (technically a shutdown, but that’s a boring hook)! Four months in and we are truly in some uncharted territory when it comes to investing and economics; not to mention social relationships (Zoom dinner party anyone?).
In response to coronavirus, broad swaths of industry have been put on lockdown, the Federal Reserve is buying up just about everything in sight and world governments have injected almost $8 trillion (8 followed by 12 zeros) in stimulus into the global economy. The scale of intervention so far is without precedent and we’ll likely be disentangling the impacts for years (if not decades) to come.
One question that is starting to come up often in the media and among the clients that I work with is what all of this means for inflation and growth. Many of my clients recall the devastating inflation that gripped the United States in the late 60’s and 70’s when a shock in oil prices (among other factors) caused inflation to spike into double digits for almost 2 decades. While inflation has remained very tame for the last 20 years and more recently the Fed has struggled to reach its stated inflationary goal of 2%, conditions are setting up for something of an economic regime change that could see inflation rise in the future.
Forecasting growth and inflation in the medium to long term is notoriously difficult. Most of the old empirical relationships that economics used to rely on (Phillips Curve anyone?) have broken down and new theories and techniques have yet to prove their reliability.
Given the uncertainty around the future of the economy, I thought now would be a good time to introduce a series of posts on inflation and economic growth. The objective of this series will be to provide a reasonably comprehensive overview for thinking about growth and inflation, the variables at play and how both may develop in the future through a discussion of common intuitions along with current trends.
The series is evolving to some degree, but at this point I think it will consist of 3-4 posts reviewing different aspects of the economic picture including:
- Basic principles of inflation and growth
- Potential and real output
- High level macroeconomic trends including Globalization and Automation
- Quantitative easing and lessons from the past.
- Investment strategies to grow and guard your portfolio in this new era.
Hopefully by the end you’ll come away with a good framework for thinking about inflation, economics and how to build a robust portfolio.
I’m certainly looking forward to this series and bringing these topics to you!
Thanks for reading!
-Aric Lux.
