Prepare for Stagflation 2.0?
Posted at 12:17 p.m. on Sept. 10
“As the debate rages over who the next Federal Reserve chairman will be, it seems Ben Bernanke’s legacy will not just be that he saved the world from financial calamity five years ago: he is also likely to bequeath stagflation, or at least a mild form of it,” writes David Rosenberg.
“While deflation continues to dominate the thought process in the market and at the worlds’ major central banks, the reality is that core inflation has bottomed… It is against this backdrop that the Fed is probably going to start tapering its quantitative easing programme… However, the Fed and other central banks are hardly going to be touching short-term interest rates, which will remain negative in real terms for years.”
“So financial repression will remain the order of the day, until the Fed gets what it wants – which is inflation expectations heading up to 2.5 per cent… That is not price stability: it is more bad news for pensioners and those who live on fixed income investments, and good news for Uncle Sam and other debtors.”