Stocks may be in for a rough patch, but bondholders should hold their nerve, writes Larry Hatheway.
About the author: Larry Hatheway is a co-founder of Jackson Hole Economics, which originally published this commentary, and the former chief economist of UBS.
That’s not a popular view these days. Various Wall Street titans—the latest being JP Morgan Chase CEO Jamie Dimon—have warned that U.S. borrowing costs could rise even further. Second, as noted, household savings have been drawn down, with many estimates suggesting the cash hoards built during the pandemic have been whittled away. Consumer spending henceforth will grow more closely in line with household income.
So, what about inflation? Despite resurgent global oil prices, most measures of inflation show an inexorable decline. Moreover, disinflation has preceded much slowing of the economy, providing compelling evidence that the 2021-2022 inflation burst was, indeed, transitory. With the economy now slated to slow, inflation should fall even further.
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