For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley
Five reasons to “worry about faster inflation.” It’s “a greater danger precisely because it’s no longer perceived as such.”
“Given how completely financial markets have come to expect low inflation and interest rates, and how much support those expectations are providing to bond and stock prices, an upside surprise could prove nasty,” says former president of the Federal Reserve Bank of New York Bill Dudley, in a warning about how markets are ignoring the rising risks of inflation.
Companies have been raising prices, and they have been getting away with it. I’m not talking about prices at the gas station or grocery store which bounce up and down, but prices for things that are more stable, particularly services, where 70% of spending takes place, such as broadband services, shipping rates, and the regular highflyers, such as healthcare. Rents on a national basis are mix of plunging rents in some cities and surging rents in other cities. There has been inflation in goods too, including used-vehicle prices which have spiked by 15% since June,
Many of the restaurants that remained open raised their prices to deal with the additional costs and the decline in seating capacity during the Pandemic, and people are willing to pay those prices to support their restaurants. This happened across other industries that have cut capacity, triggering surging prices despite a decline in demand.
Some of these price increases happened because demand was red-hot, brought on by the sudden shifts to eating at home, working at home, learning at home, playing at home, and vacationing at home, and the other distortions brought about by the Weirdest Economy Ever. Other price increases happened because there were supply constraints due to the Pandemic, and the higher prices stuck.
…click on the above link to read the rest of the article…
