This is an excerpt from the blog of our good friend Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group – The Boock Report. He is highlighting a recent comment from former NY Fed President regarding potential future inflation.
Be sure to visit Peter’s site to keep up to date on the data, comments, and markets that have his attention. Click here to visit Peter’s site.
There is sometimes this refreshing ability of former central bankers in speaking their true mind when they are no longer involved where when in the institution they instead mostly drink the Kool Aid of standard central bank mantra believing they could do no wrong and there are no unintended consequences of note of their policies. Former NY Fed President Bill Dudley has an opinion piece on Bloomberg today titled “Four More Reasons to Worry About US Inflation.” In a recent piece he gave five reasons “to be worried about the risk of an unpleasant surprise, in which inflation returns faster than people expect. I’m now seeing four more.”
The new concerns, 1)”this recovery should be faster than the last” as he said “Slumps brought on by pandemics tend to end faster than those brought on by financial crisis.” 2)”Many households have resources to spend” in part helped by all the government transfer payments. 3)”Companies have money. Financial conditions are extraordinarily accommodative. The US stock market is reaching new heights and bond yields remain usually low, giving enterprises ample opportunity to raise funds for expansion.” 4)”People are starting to expect more inflation. Prices in the market for Treasury securities suggest that investors currently expect the Fed’s preferred inflation measure to average about 2% over the next 10 years. That’s up about half a percentage point from November. This matters, because inflation expectations tend to be an important determinant of actual inflation outcomes.”
His bottom line:
“All this suggest that the Fed, despite its desire to be accommodative and boost employment, might have to pull back on stimulus sooner and with greater force than anticipated to keep inflation in check. Such a move would be a significant surprise, given that in the Fed’s most recent Summary of Economic Projections, the median projection foresees no rate hikes through 2023. This, in turn, would further increase the chances of a volatile market reaction, along the lines of the taper tantrum that the US experienced in 2013.”
It certainly would.