• It depends on the Fed
• Experts see buying opportunities
The return of the US economy to normal operations after the Corona crisis, combined with the enormous stimuli from the government and the monetary authorities, is unlikely to remain without effects on inflation. Because if a supply shock is followed by a surge in demand, then this is a “classic recipe” for a rise in inflation, “MarketWatch” quotes Christopher Wood. “That’s why investors in America should be prepared for the biggest inflation scare since the early 1980s when the economy reopens,” warned Jefferies’ top equity strategist.
Will inflation only rise in the short term?
Whether this creates a risk for investors depends primarily on how long inflation remains high and how the US Federal Reserve reacts to it.
As Brian Nick, chief investment strategist at Nuveen, explained in an interview with “MarketWatch”, a short-term inflation scare is more likely to be just a “data freak” triggered by the recent rise in commodity prices, a collapse in supply and by Base effects. The latter means that prices will increase significantly compared to the previous year, but this is also due to the fact that they are only returning to their pre-crisis level.
Fed wants to relax Monetary policy maintained
The US Federal Reserve has already signaled that it does not fear long-term high inflation and that it therefore intends to keep the money locks open for a long time to come.
At an online event hosted by the Economic Club of Washington in mid-March, US Federal Reserve Chairman Jerome Powell explained that the Fed wanted to wait until inflation had risen above two percent and full employment had reached full employment before changing its monetary policy. This is unlikely to be the case before the end of 2022. He pointed out that most Fed members have one Rate hike not expected before 2024. However, this is not a forecast by the Monetary Policy Committee (FOMC), Powell said.
In order to create more room for maneuver in monetary policy, the Fed only decided at the end of August that the inflation target should in future only averaged two percent. According to this new model called “Average Inflation Targeting”, the inflation rate may in future be kept above the 2 percent target for some time if it was previously below this targeted ideal value for a long time. The fact that past inflation is taken into account is new – so far there has only been one goal aimed at the future.
This new policy enables the US monetary authorities to significantly delay an exit from their currently ultra-loose monetary policy, because thanks to their changed strategy, the Fed is no longer under pressure to intervene quickly if inflation should rise in the future.
But despite the statements made by the central bank, according to “MarketWatch” there are also voices on the market that warn of the risk that the rise in inflation may not only be of a short-term nature and that the monetary authorities will not sit still in the event of a prolonged strong price increase .
But even this uncertainty about the Fed’s behavior could turn into an investor’s favor. According to Kristina Hooper, Chief Global Market Strategist at Invesco, this could open up tactical buying opportunities for long-term investors. And if market disruptions develop, she assumes that Fed Chairman Powell will probably intervene, reports “MarketWatch”.
Brian Nick also sees opportunities for investors: he believes that better economic data and further success in vaccinating the population should benefit cyclical stocks. This is provided that the Fed does not completely abandon its promise of a sustained loose monetary policy and proceeds in a market-friendly manner should it ultimately decide to increase interest rates.
Finanzen.net editorial team
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