CONTRIBUTORS
Michael J. Bazdarich, PhD
There has been a wave of speculation recently about the inevitability of rising inflation, given the enormous amount of both fiscal and monetary stimulus unleashed to counter the ill effects of COVID-19’s economic impact. While of course this time the specifics are new, we’ve seen similar concerns over the last 40 years and we are not convinced this time is any different. Here we detail why we don’t agree with the inflation predictions, citing nominal gross domestic product (GDP) growth rates, the velocity of money, the current state of bank lending and more.
Key Takeaways
- While we do concede that a rise in inflation is more of a possibility at present than at any time over the past 40 years, we’re not convinced it is inevitable or even likely.
- We believe a confluence of factors need to be present—not simply very low interest rates and stimulus—for a sustained rise in inflation to occur.
- Our view is that the increase in the money supply engineered by the Fed, with help from Treasury, has been fully offset by increasing money demand.
- Stricter banking regulations limit the effectiveness of monetary policy, which we cite as the best reason to think that inflation will remain contained.
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