Inflation and yield Monetary policy

Stick with “transitory”

Tuesday, May 24 evening, after I completed reading the latest Financial Stabiity Report, I was getting confident that the market might have bottomed out or be close to bottom, and I put a note. It turned out to be a precise call. Nasdaq rebounded a 1000 points by Friday.

Modern economies with the help from technologies and globalization (we are still very globalized even with some set back), are inherently deflationary. I believe the inflations we are experiencing today are TRANSITORY. From control theory perspective, inflation dynamics are long with time constant of two years. The transition is complicated by the Ukraine/Russia war and the extended zero COVID policy in China, but that does not change the deflationary nature of our modern economy. In that sense, I believe interest rates will remain low compared with pre-fiancial crisis of 2007/2008.

Finally, a high but quick inflation is really good for anyone with debt, including the governments as all these debt are reduced by inflation amount. Is not that a good deal for all!