Wall Street investors are underestimating the imminent comeback of inflation, but it’s “dead ahead” and will affect every corner of the market, warned Mark Zandi, chief economist at Moody’s Analytics.
“Inflationary pressures will develop very quickly,” Zandi told CNBC’s “Trading Nation” on Friday. “I don’t think there’s any shelter here.”
Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.
The cost of U.S. consumer goods and services rose by 0.4 percent in February, the government said Wednesday, matching the estimate of economists polled by Dow Jones and The Wall Street Journal, MarketWatch reported.
The rate of inflation in the past year grew from 1.4 percent to to 1.7 percent. As the U.S. economic recovery gains momentum, many economists predict inflation could exceed its pre-pandemic pace of 2.3 percent pace by mid-2021.
Zandi predicted rising rates and employment in 2021, reflecting a booming economy. “We’ve got the pandemic winding down, a boatload of fiscal support coming and we’ve got a lot of folks who have pent up demand and a lot of savings that they’re going to unleash,” he said. “Growth is going to be very, very strong – lots of jobs, falling unemployment (and) wage growth.”
Investors should get used to wild market swings that last longer than two weeks, Zandi said. Not even stocks tied to the economic recovery will be a safe haven for investors: “These are broad, macroeconomic forces that are going to affect all parts of the market equally.”
Listen to GHOGH with Jamarlin Martin | Episode 73: Jamarlin Martin Jamarlin makes the case for why this is a multi-factor rebellion vs. just protests about George Floyd. He discusses the Democratic Party’s sneaky relationship with the police in cities and states under Dem control, and why Joe Biden is a cop and the Steve Jobs of mass incarceration.
Not everyone is telling the same inflation story as Zandi.
Bank of America predicted in a note Wednesday that inflation is “well-contained” and a rise in inflation will be temporary, Business Insider reported. That’s partly because supply chain disruptions brought on by the coronavirus are temporary and will be resolved as employment picks up.
Zandi’s forecast calls for a sideways market for up to three years with volatility due to frothiness and rising rates, CNBC reported. “Most importantly, valuations are very, very high by any historical standards,” he said. “For investors who are more near-term focused, I think it’s just going to be a very difficult market to navigate in.”
