In his most recent 4Q20 review and 2021 outlook, Dr. Lacy Hunt reiterated his long-term bullish view that the long dated U.S. Treasury rates will eventually gravitate to lower levels as inflation continues to recede. While many people expect interest rates to rise throughout 2021 driven by inflation created by loose fiscal and loose monetary policy, Dr. Lacy Hunt argues that a secular inflation cycle is not at hand, given: (1) the massive void in economic activity and destruction of wealth created by the virus and related shutdowns of businesses in the U.S. and abroad will take years to fill; (2) U.S. fiscal multipliers are generally negative, rendering much government spending counterproductive in terms of stimulating economic growth; and (3) Monetary policy becomes much less impactful since the debt overhang was massive before the pandemic and is now even worse, not just in the United States but in virtually all parts of the world.
Dr. Lacy Hunt's Deflation Argument
Dr. Lacy Hunt's Deflation Argument
Dr. Lacy Hunt's Deflation Argument
In his most recent 4Q20 review and 2021 outlook, Dr. Lacy Hunt reiterated his long-term bullish view that the long dated U.S. Treasury rates will eventually gravitate to lower levels as inflation continues to recede. While many people expect interest rates to rise throughout 2021 driven by inflation created by loose fiscal and loose monetary policy, Dr. Lacy Hunt argues that a secular inflation cycle is not at hand, given: (1) the massive void in economic activity and destruction of wealth created by the virus and related shutdowns of businesses in the U.S. and abroad will take years to fill; (2) U.S. fiscal multipliers are generally negative, rendering much government spending counterproductive in terms of stimulating economic growth; and (3) Monetary policy becomes much less impactful since the debt overhang was massive before the pandemic and is now even worse, not just in the United States but in virtually all parts of the world.