{"id":8402,"date":"2019-12-30T16:46:28","date_gmt":"2019-12-30T16:46:28","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8402"},"modified":"2022-02-26T13:06:50","modified_gmt":"2022-02-26T13:06:50","slug":"what-can-a-decade-of-lost-inflation-tell-us-about-the-market","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-can-a-decade-of-lost-inflation-tell-us-about-the-market\/","title":{"rendered":"What Can a Decade of Lost Inflation Tell Us About the Market?"},"content":{"rendered":"\n<p>In the wake of the 2008 Global Financial Crisis, the U.S.\ngovernment was pulling all levers to try and stabilize the economy and get\ngrowth back on track. In addition to unprecedented bailout programs like TARP\nand liquidity-boosting schemes like QE1 and QE2, the Federal Reserve also\neffectively lowered interest rates to zero. In all, between 2008 and 2015, the\nFed\u2019s balance sheet soared from $900 billion to $4.5 trillion.<sup>1<\/sup> <\/p>\n\n\n\n<p>As the U.S. economy started to recover and grow, a new\nconsensus formed about what was likely to happen next: <em>runaway inflation. <\/em>Even with the benefit of hindsight, calling for higher\nlevels of inflation seemed at the time like a very logical conclusion to draw.\nWith the Fed essentially eliminating the cost of borrowing and injecting\ntrillions of dollars into U.S. companies and the financial system, surely we\u2019d\nsee a surge in inflation to be reckoned with down the road\u2026right? <\/p>\n\n\n\n<p>Yet here we are a decade later, with no signs of runaway\ninflation. There has been no inflation \u2018reckoning,\u2019 no systematic monetary\npolicy tightening to try and stave off higher prices. In the months and years\njust after the financial crisis, consensus had largely been that the fed funds\nrate would be north of 4% by 2020. But with just a handful of days left in the\nyear, the fed funds rate remains in a range of 1.5% to 1.75%, with the economy\ntrudging along with below-target inflation and slower-than-average economic,\nwage, and productivity growth (but better-than-expected employment).<sup>2<\/sup>\n&nbsp;<\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_12_30&amp;content=stock_market_outlook_report\">Base Your Investing Decisions on Hard Data!<\/a><\/strong><\/p>\n\n\n\n<p>In addition to inflation, I believe there are other\nimportant economic indicators to keep on eye on, especially as you start\nplanning your investments for 2020.<\/p>\n\n\n\n<p>To help\nyou do this, I am offering all readers a look into our just-released&nbsp;<strong>January\n2020 Stock Market Outlook report.<\/strong><br>\n&nbsp;<br>\nThis report will provide you with our forecasts along with additional factors\nto consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Should you stay bullish?<\/em><\/li><li><em>What sectors&nbsp;show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>What produces U.S. optimism in the coming year?&nbsp;<\/em><\/li><li><em>Year-end forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_12_30&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released January 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_12_30&amp;content=stock_market_outlook_report\">3<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong>Even as the Fed has\nKept Interest Rates \u201cLower for Longer,\u201d Inflation Remains in Check<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/3_image-1-of-2-1024x395.png\" alt=\"\" class=\"wp-image-8403\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p><strong>So, What Happened? Why Did Inflation Never Really Take Hold?<\/strong><\/p>\n\n\n\n<p>I\u2019m not sure we\u2019re at a point in history yet where it\u2019s\npossible to look back at this decade and understand exactly why inflation\nremained so subdued, for so long. But there are a few working theories I\u2019ll\nshare with readers. <\/p>\n\n\n\n<p>First &#8211; the return of the savers. In the wake of a financial\ncrisis \u2013 particularly one that profoundly affected nearly every American \u2013 we\ntend to see households, businesses, and banks de-risk and take steps to improve\nbalance sheets. Regulation forced banks to make such changes, and households\nfollowed suit and paid down debt in the ensuing years. These actions generally\nmean less borrowing, investing, and risk-taking, which keeps a lid on growth,\ninflation, and interest rates. As you can see from the chart below, household\ndebt to GDP fell significantly in the years following the recession. <\/p>\n\n\n\n<p><strong>Household Debt-to-GDP Ratio in the US, 2005 &#8211; Current<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_image-2-of-2-1024x395.png\" alt=\"\" class=\"wp-image-8404\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>A second possible cause for weak inflation is technology,\nwhich has actually been a deflationary force since the 1990\u2019s, in my view. I also believe in the possibility that\ntechnology\u2019s cost-reduction results in a multiplier effect, which results in\nvarious deflationary linkages throughout the economy.<\/p>\n\n\n\n<p>There are\nmyriad ways to think about how technology has reduced the cost of goods and the\ncost of doing business. Think about household goods and retail. The massive\nshift to buying goods via e-commerce (online shopping, Amazon) versus a trip to\na brick-and-mortar store may increase the cost of physical delivery, but it\nreduces or eliminates cost of real estate, utilities, requires few workers,\nlowers inventory carrying costs, and uses data to target consumers with\nprecision ads \u2013 which are far more effective than traditional marketing methods.\nIn all, technology has driven efficiency, which has kept a lid on costs and\nprices. &nbsp;<\/p>\n\n\n\n<p>Finally, a\nthird possible explanation for subdued inflation over the last ten years is spare\ncapacity in the U.S. economy. The \u2018Great Recession\u2019 led to such a dramatic\ndecline in output, job losses, and wealth destruction that it created a\nsubstantial amount of spare capacity in the economy that we\u2019re only now\nstarting to reach. It would make sense, then, that price pressures would remain\ntepid so long as that spare capacity existed. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Even with weaker-than-expected inflation \u2013 or perhaps\nbecause of it \u2013 the U.S. economy has managed to deliver its longest economic\nexpansion on record, with unemployment at a 50-year low and the stock market at\nall-time highs. In other words, this head-scratching bout of low inflation has\nnot resulted in any material adverse impact for investors, businesses, or\nconsumers. <\/p>\n\n\n\n<p>As we move forward from here, my cautionary advice to\ninvestors would be that just as everyone starts to ignore or write-off\ninflation for good, that\u2019s when you should perk up and watch for rising\ninflation and rising interest rates. It could happen sooner than many think.<\/p>\n\n\n\n<p>To help you keep an eye on inflation as well as other key economic factors, I am offering all readers our <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_12_30&amp;content=stock_market_outlook_report\">Just-Released January 2020 Stock Market Outlook Report.<\/a><\/strong><br> &nbsp;<br> This Special Report is packed with newly revised predictions to consider for 2020 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Why you should stay bullish?<\/em><\/li><li><em>What sectors&nbsp;show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>What produces U.S. optimism in the coming year?&nbsp;<\/em><\/li><li><em>Year-end forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>6<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch gives investors cautionary advice about writing-off inflation<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8402","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8402","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8402"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8402\/revisions"}],"predecessor-version":[{"id":10663,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8402\/revisions\/10663"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}