An era of high consumer price inflation, not just in the US but globally, most

likely lies ahead. Even so, we should be prepared for a probable lull in inflation

after a first spurt later this year. And a risk-scenario exists were a growth cycle

downturn starting in 2022 develops into a full-blown recession driven by savage

asset price deflation. The aftermath of that could be an extended period of

monetary repression rather than a resumed early march into an era of high

inflation.

No wonder the so-called “reflation trade”, based on the view that a post-pandemic

boom will send long-term interest rates much higher, hardly seems

like a one-way bet. A mega stimulus package focused on the next 12 months

may make political sense in terms of a Democratic landslide in the mid-terms.

That is what “go big” is all about! However, this stimulus, coupled with the inbuilt

rebound of spending as pandemic recedes, adds to the likelihood of a

future pullback of the economy.