An Update from Our CIOs: Transitioning to Stagflation
Comment of the Day

August 03 2022

Commentary by Eoin Treacy

An Update from Our CIOs: Transitioning to Stagflation

This blog post from Bridgewater may be of interest to subscribers. Here is a section:

Today, our indicators suggest an imminent and significant weakening of real growth and a persistently high level of inflation (with some near-term slowing from a very high level). Combining this with what is discounted, the difference between what is likely to transpire in the near term and what is discounted is the strongest near-term stagflationary signal in 100 years, shown below. Longer term, as we play it out in our minds, we doubt that policy makers will be willing to tolerate the degree of economic weakness required to bring the monetary inflation under control quickly. More likely, we see good odds that they pause or reverse course at some point, causing stagflation to be sustained for longer, requiring at least a second tightening cycle to achieve the desired level of inflation. A second tightening cycle is not discounted at all and presents the greatest risk of massive wealth destruction.

Eoin Treacy's view

The pendulum analogy gels rather well with the above view. The current effort to unwind inflationary forces, arising from excessive money supply growth, is going to result in a growth shock.

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