Inflation or Employment
- Inflationary fears are growing and US rates continue to rise
- Employment has become more flexible since the crisis of 2008/2009
- Commodity prices have risen but from multi-year lows
- During the next recession job losses will rapidly temper inflationary pressures
Given the official policy response to the Great Financial Recession – a mixture of central bank balance sheet expansion, lower for longer interest rates and a general lack of fiscal rectitude on the part of developed nation governments – I believe there are two factors which are key for stock markets over the next few years, inflation and employment. The fact that these also happen to be the two mandated targets of the Federal Reserve – full employment and price stability – is more than coincidental.
My struggle is in attempting to decide whether demand-pull inflation can survive the impact of a rapid rise in unemployment come the next recession.
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