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“It’s like déjà vu all over again.” – Yogi Berra

In my last inflation blog post, dated 10 November 2020, I addressed a question that many clients have been asking lately: Are we about to enter a global “inflation era”? My short answer was (and still is) not right now, but potentially down the road. By way of follow-up, I thought I’d compare today’s inflation worries with those that arose during the quantitative-easing (QE)-fueled period after the 2008 global financial crisis (GFC).

The current inflation concerns, set amid a world of growing central bank balance sheets, ballooning fiscal deficits, and unprecedented policy innovation, echo the inflation fears raised in the post-GFC era. In the end, those latter fears proved to be unfounded, as inflation continued to decline over the ensuing decade. Why would this time be any different? To answer that, it helps to understand what the QE measures enacted in response to the GFC were actually intended to do — and why they…

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Samouilhan_Nick
Nick Samouilhan
PhD, CFA, FRM
Multi-Asset Strategist
Singapore

Given the weak economic data and considerable uncertainty clouding today’s landscape, I must admit to being a bit skeptical about how long the current rally in risk assets can last. But in the interest of staying open to alternative views, I recently listened to an economist for a major Japanese financial company deliver a refreshingly optimistic take on the global economy and markets. 

His main point was simply that this is the first time in modern history where fiscal and monetary policy are working together – both are coordinated, both are easing – because inflation is nowhere in sight. Usually, those two policy levers work against each other (i.e., “tight fiscal/loose monetary” or “loose fiscal/tight monetary”). 

The atypical “loose fiscal/loose monetary” regime we have now sends a powerful signal to the markets, regardless of the damage done to…

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John Li
John Li
CFA
Fixed Income Portfolio Manager
Boston
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