Inflation Fears Will Settle, But Only If Growth Continues

Inflation Fears Will Settle, But Only If Growth Continues

Share to Linkedin UNITED STATES - March 8: The Federal Reserve building is pictured in Washington on Monday, March 8, ... [+] 2021. (Photo by Caroline Brehman/CQ-Roll Call, Inc via Getty Images) If there is one fear that seems to constantly haunt investors, it is that latent inflation flares up and flattens markets. Most central banks in developed economies look to target a 2% inflation rate and have, over the last several decades, succeeded in anchoring investor expectations. With unprecedented stimulus stoking the global recovery, concerns are taking hold that inflation dynamics are about to shift. Higher costs from dislocated supply chains, a reduced service sector and pent up demand as vaccine adoption crests will likely pressure prices. However, many of these factors may be transitory. Once the economy adjusts to any new constraints, price pressure will likely moderate. The biggest threat to financial normalization may be swelling government debt and the money printing that is helping monetize it. Could this debt buildup and related deficit spending push inflation and rates significantly higher? Developed economy experience suggests the answer is no. Over the last two centuries, wealthy democracies have generally succeeded in preventing capital flight. Some of the most notable