The recent sharp rise in real interest rates in the United States, Inflation expectations into the “panic state”, the extremely loose policy environment, climbing inflation, high interest rates, can not help but remind people of the United States in the 1970s inflationary era, stagflation pattern of stocks, debt double kill, in the end after the Epidemic, the United States will repeat history again?
Internal media cited analysis that, looking back at history, fiscal expansion and the oil crisis double catalyst is the main cause of the 1970s hyperinflation. When the U.S. government to implement expansionary fiscal policy, and then promote price controls, the results led to retaliatory rebound, two oil crises intensified, the end of the 1970s U.S. inflation into the 13.3% vicious range. The U.S. Federal Reserve raised the federal reserve rate to an unprecedented 20%, and although inflation was brought under control, the economy stagnated under the impact of high interest rates and financial market turmoil.
Back then, the U.S. Federal Reserve was crazy to raise interest rates on the grounds that the real risk came from rising inflation rather than deflation, and the only way to stabilize prices was to raise interest rates, so there was no margin for manoeuvre in the rate hike policy. And the agency’s monetary intermediation target stares at the quantity of money, and the serious divergence between nominal and real interest rates under high inflation conditions makes it unrealistic to use the federal funds rate as an intermediation target. In order to rebuild the government’s trust, the policy focus is all on controlling hyperinflation.
But the hyperinflation at hand is similar but not identical to the 1970s. The similarity is that the current inflation is also driven by a combination of strong fiscal stimulus and high energy prices due to supply shortages. The difference is that: shale oil has reshaped the global Crude Oil supply and demand pattern; the fastest global economic growth has basically passed, and with the subsequent global PMI topping out one after another, the demand-side factors weakened, the space for commodity prices to continue to rise is limited, and the supply-side as oil-producing countries have been withdrawing from the production cut agreement, the trend of oil prices will probably stop here; the United States to implement the average inflation targeting system, for the follow-up monetary policy Open up space to avoid inflation up still subject to the constraints of the past “past blame” thinking and had to raise interest rates, so the Federal Reserve is unlikely to repeat the mistakes of the 70s.
With the triple resonance of accelerated vaccination, accelerated economic recovery and confirmation of the expected inflection point of liquidity, global inflation will inevitably become the biggest risk in the next two years, and the trend of low inflation and low inflation expectations may be reversed, and therefore the certainty of global policy shift and interest rate increase in the medium to long term is high. Considering that the current round of recovery interest rates start low, U.S. debt from 1 to 2% at the beginning of the year is already leapfrogging up, the year phase break 2% is also possible. After all, too high, too fast interest rates, are the natural enemy of asset bubbles, global asset classes face revaluation.
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