{"id":9443,"date":"2021-03-29T17:02:30","date_gmt":"2021-03-29T17:02:30","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9443"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"will-the-massive-stimulus-trigger-inflation","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-the-massive-stimulus-trigger-inflation\/","title":{"rendered":"Will The Massive Stimulus Trigger Inflation?"},"content":{"rendered":"\n<p>The recent passage of the $1.9 trillion American Rescue Plan\n\u2013 and the trillions of dollars in stimulus that came before it \u2013 have revived\ninflation fears. Many readers remember the period of double-digit inflation in\nthe 1970s and early 1980s, which culminated in a major, global economic\nrecession. With all the current spending, some fear history is bound to repeat\nitself.<sup>1<\/sup><\/p>\n\n\n\n<p>Early inflationary signs are appearing. One of the best\nplaces to look for future inflation is in the cost of risk-free debt, i.e., long-dated\nU.S. Treasury bonds. If the market expects higher future inflation, it will\ndemand a higher yield on risk-free bonds today to compensate. That\u2019s why in the\nlate 1970s and early 1980s, investors could buy U.S. Treasury bonds yielding\ndouble-digit interest rates. <\/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_2021_03_29&amp;content=stock_market_outlook_report\">Are You Prepared For Inflation and Market Volatility?<\/a><\/strong><\/p>\n\n\n\n<p>In times like this when market volatility is a constant and\ninflation is becoming a huge concern for investors, it is important not to lose\nsight of the long-term view. Don\u2019t let the media and sudden changes in the\nmarket cause you to make knee-jerk responses based on emotion. <\/p>\n\n\n\n<p>The best way to navigate through inflation is to focus on\nthe fundamentals, hard data, progress and innovation being made. To help you do\nthis, I am offering all readers our just-released Stock Market Outlook report.\nThis report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>S&amp;P\n500 earnings growth<\/em><\/li><li><em>Outlook\nfor underlying U.S. economy?<\/em><\/li><li><em>U.S.\nreturns expectations for 2021<\/em><\/li><li><em>What\nproduces 2021 optimism?&nbsp; <\/em><\/li><li><em>Is\nit time to buy U.S. stocks?<\/em><\/li><li><em>Update\non U.S. fiscal stimulus<\/em><\/li><li><em>And\nmuch more\u2026<\/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!\u00a0<br> <br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_03_29&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released April 2021 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_03_29&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>___________________________________________________________________________<\/p>\n\n\n\n<p>In 2021 to date, we have seen sustained upward pressure on\nthe 10-year and 30-year U.S. Treasury bond yield, a signal that inflation\nexpectations are rising. The 10-year started 2021 yielding 0.93%, and as I\nwrite, is now yielding 1.70%.<sup>3<\/sup> That\u2019s a significant move.<\/p>\n\n\n\n<p>We\u2019re also seeing price pressures in the real economy. The\nhousing market is a good example. Lumber prices have never been higher, and\ncrude oil \u2013 which is used in paint, drain pipes, roof shingles, and flooring \u2013\nhas rallied over the past several months. Copper prices have also jumped by\nnearly 40% since last fall, and brick, concrete, and insulation prices are all\nhigher as well, with many hitting new records in 2021. Taken together, these\nhigher prices for raw materials are putting upward pressure on the overall cost\nof homes in the US today.<\/p>\n\n\n\n<p>I expect more inflationary pressures in the coming years,\nbut I also believe the Federal Reserve has ample tools to keep it in check.\nAllow me to explain both positions. <\/p>\n\n\n\n<p>To understand why additional government spending could impact\ninflation going forward, I think it\u2019s useful to look back to the 2008-2009\nGlobal Financial Crisis. Back then, the federal government also spent trillions\nto revive the economy, and many expected runaway inflation. It never happened. <\/p>\n\n\n\n<p>If\nyou go back to 2009, however, quantitative easing (QE) and other liquidity\nprograms just served to recapitalize banks after the devastation of the financial\ncrisis. Banks desperately needed capital reserves, and most of the stimulus\njust ended up parked on bank reserves. In order to trigger inflation, dollars\nneed to move around the real economy \u2013 not sit on bank balance sheets. <\/p>\n\n\n\n<p>Fast-forward\nto 2021. Banks are already well-capitalized, and a lion\u2019s share of government\nstimulus payments have come in the form of direct transfers \u2013 stimulus payments\nto families, PPP and Main Street loans (which essentially become grants),\nexpanded unemployment benefits, child tax credits, and more. Though many\nAmerican families are saving their stimulus payments, a significant portion of\nstimulus payments are not sitting on bank balance sheets. The money is moving\naround the real economy. <\/p>\n\n\n\n<p>The end result is that the M2 money supply is rising at an\nunprecedented 25% year-over-year rate, which is faster than during the\ninflationary period of the 1970s: <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/8_pic1-2-1024x395.png\" alt=\"\" class=\"wp-image-9444\"\/><figcaption><strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>In short, I think the case for future inflation is pretty strong.\nBut I\u2019m also not too worried about it today. The U.S. economy still has plenty\nof slack, and rising money supply is a good driver of growth. If inflationary\npressures start in earnest, it will be a sign that the economy is returning to\nfull health. Remember, some \u2013 but not too much \u2013 inflation is a good thing. <\/p>\n\n\n\n<p>The Federal Reserve has made it clear they are comfortable\nseeing inflation run above their long-term target. So, seeing inflation in the\n2% to 3% range would be acceptable, and would not put the economic expansion at\nrisk. If inflation runs hotter than that, the Fed can easily step in and raise\ninterest rates and sell bonds to tighten monetary policy. There are plenty of\ntools available to fight inflation, but I don\u2019t think the Fed will have to use\nany of them in 2021. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>I agree inflation is a growing concern. I just disagree with\nframing it as an urgent concern today. The U.S. economy still has plenty of\nrunway to return to pre-pandemic strength, and there is plenty of spare\ncapacity and slack in the labor market to keep prices from moving too high too\nquickly, in my view. Inflation could very well become an economic issue down\nthe road, but I just don\u2019t think it will be a major concern in 2021. <\/p>\n\n\n\n<p>At Zacks Investment Management, every decision we make on behalf\nof clients is data-driven and fueled by the power of independent proprietary\nresearch. If and when inflation becomes a significant concern, we will factor\nit into our decision-making process.<\/p>\n\n\n\n<p>While inflation may not be an urgent concern today, it\u2019s still important to understand how to navigate through it. To help you do this, I recommend focusing on key data points and economic indicators that could positively impact your investments in the future. To guide you, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_03_29&amp;content=stock_market_outlook_report\">Just-Released April 2021 Stock Market Outlook Report.<\/a>\u00a0<\/strong><\/p>\n\n\n\n<p>This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>S&amp;P\n500 earnings growth<\/em><\/li><li><em>Outlook\nfor underlying U.S. economy?<\/em><\/li><li><em>U.S.\nreturns expectations for 2021<\/em><\/li><li><em>What\nproduces 2021 optimism?&nbsp; <\/em><\/li><li><em>Is\nit time to buy U.S. stocks?<\/em><\/li><li><em>Update\non U.S. fiscal stimulus<\/em><\/li><li><em>And\nmuch more\u2026<\/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! <\/p>\n","protected":false},"excerpt":{"rendered":"<p>As the government pours trillions into the economy, many fear the return of inflation. Here&#8217;s our view.<\/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-9443","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\/9443","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=9443"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9443\/revisions"}],"predecessor-version":[{"id":10426,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9443\/revisions\/10426"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}