We’ve been chatting up the inflation story lately, and for good reason: inflation is rising. But that’s yesterday’s news. Thus the relevant question: Will it continue to rise?
No one really knows, although everyone has a guess, and those guesses are all over the map, as yesterday’s post reminds. On one side are those who expect inflation to remain relatively high, if not rise further. A superficial reading of recent history supports this view, as per the upward momentum in inflation measures of late.
The alternative theory is that inflation will soon fall, courtesy of the economic slowdown. The Federal Reserve subscribes to this theory, and so the central bank remains comfortable with keeping interest rates low. The danger is that inflation’s pace doesn’t fall, or that it doesn’t fall enough to compensate for the low rates.
Not everyone worries about that scenario, and arguably those who do (including your editor) are in the minority. For everyone’s sake, let’s hope this minority is wrong. On that note, let’s consider how the majority thinks. As one example: the latest research from Northern Trust. “If history is a guide, the U.S. economy is probably at the brink of a turning point in inflation,” NT’s Asha Bangalore writes. “This is entirely conceivable given the projection of weak economic conditions in the near term. Inflation expectations (as measured by the difference in nominal 10-year U.S Treasury note yield and the 10-year TIP yield) as of August 19 stood at 2.15%, down from 2.57% on July 3.”