Definitive statements about the future are always suspect in finance and economics, but it’s reasonable to assume that the threat of deflation as a clear and present danger has passed. But we can’t say for sure. To the extent that a double-dip recession remains a possibility, so too will does hazard of a fresh round of deflationary pressures.
Yet those concerns look minimal at this point. The primary challenge, as we’ve discussed routinely this year, is tied to the headwinds of growth. The risk of another of follow-up cataclysm to last year’s drama, by contrast, fades with each passing month. In short, the central issue is one of managing the chronic problems that await rather than the acute ones that recently passed.
Yet we shouldn’t underestimate the complications and potential fallout that are likely to accompany what we expect will be a subpar economic recovery, in large part because of what’s likely to be a sluggish rebound in the labor market. (For some background on our thinking about the job market, take a look at this post from earlier this month and our analysis here, for example.)