How economic wars, pandemics, and worker shortages could lead to years of high structural inflation. What needs to happen to avoid this dire inflation scenario.
Topics covered include:
- What are three inflation lessons shared by Federal Reserve Chair Jerome Powell
- What is inflation anchoring
- What caused the current period of high inflation
- How China and Russia contributed to low inflation and why those trends have reversed
- How behavior changes and productivity improvements can contribute to lower inflation
- How to invest for an extended period of high inflation
Show Notes
War and Interest Rates by Zoltan Pozsar—Credit Suisse
2nd Quarter Market Commentary, July 2022—Horizon Kinetics
Investments Mentioned
Invesco DB Commodity Tracking ETF (DBC)
Horizons Kinetics Inflation Beneficiary ETF (INFL)
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Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 400. 400 episodes. The title is “What if high inflation persists for years?”
800 Episodes
I’ve been doing the Money For the Rest of Us podcast for over eight years. Obviously, when I started, I didn’t anticipate doing it for eight years. But here we are at episode 400, numbered episode 400.
If we include the premium Money For the Rest of Us Plus episodes, I’ve done close to 800 episodes. Thanks for listening to the podcast. Thank you for sharing our work with others, for your feedback that you provide, including leaving reviews on the podcast.
We consider doing a special episode for the 400th episode. My son Bret suggested we should do something special for episode 401, in honor of the 401k, the primary employer-sponsored retirement plan in the US. We decided though that we would hold off doing a special episode today. Hold it off for a couple of years.
We’ll wait until we celebrate our 10th anniversary and our 500th episode. So again, thanks for everything you do to share the show, listening to the show and engaging with the show, and in all the other content we provide at Money For the Rest of Us. But let’s get to this week’s topic.
Three Lessons from Federal Reserve Chair Powell
Last week, the Federal Reserve Chair Jerome Powell gave a keynote speech at the Kansas City Federal Reserve Bank’s Economic Policy Symposium in Jackson Hole, Wyoming. This is one of the longest-running and one of the largest central bank conferences in the world. It’s been going on since 1978.
They’ve held it in Jackson Hole since 1982 every August. I think they should change when they hold it because every August in Jackson Hole—and I know this because it’s not that far from our cabin in Idaho—it gets smoky with wildfires. You have all these central bankers coming, and it’s smoky out. They should hold the conference in June.
Jerome Powell’s speech was very short. Less than 10 minutes. In the speech, he drew on three lessons from the 1970s and 1980s that argued for maintaining a more restrictive monetary policy in the face of high inflation. And by restrictive monetary policy, we’re talking about much higher short-term policy rates or short-term interest rates, which then lead to higher longer-term interest rates.
The first lesson Powell said was the Federal Reserve and other central bankers can and should take responsibility for delivering low inflation. He said “Our responsibility to deliver price stability is unconditional. It is true that current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than we see here in the United States.
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