Here’s How Bad Experts Think Inflation Will Get—And How It Will Affect Markets

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Fed insists high inflation is “temporary”, but experts interviewed Businesshala The high prices seem to be in place for a long time.

ifLooks like you’re overpaying For everyday stuff, that’s because you are. Inflation is growing at the fastest pace in 30 years and it doesn’t seem likely to slow down anytime soon. Some experts say high inflation is only temporary, while others think it could last for the next year or more.

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The consumer price index, a key measure of inflation, rose 6.2% in October from a year earlier, according to the most recent statistics From the Bureau of Labor Statistics. Supply chain disruptions and labor shortage have compounded the issue. Scared investors are now looking to 2022, wondering how the Federal Reserve will react if inflation does not subside and the central bank does not return to its long-term 2% target rate.

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Though investors fear higher price hike, they haven’t derailed the market yet. The stock is near record highs — boosted by solid third-quarter earnings — and is now ready to rally through the holiday season.

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But market experts and economists interviewed Businesshala Broadly speaking, high inflation seems to be here to stay, which could derail the market. They also remain bullish on long-term US economic growth, despite periods of high costs. The main concern, he says, is how the Federal Reserve will react—and how it will affect markets, which are likely to be bumpy next year.

The Federal Reserve announced last month that it would begin reducing the historical level of stimulus the market has provided since the start of the Covid-19 pandemic, which is also cautioning investors.

Minneapolis Fed Chairman Neil Kashkari said in a Interview As CBS News reported earlier this month, investors should “not overreact to some of these temporary factors.” He continued, “The math shows that we’re going to see somewhat higher readings over the next few months before they start to decrease.

Here’s what some of Wall Street’s top experts are expecting.

Mark Zandik

Moody’s Chief Economist

The current surge in inflation is largely due to For the pandemic and more specifically the delta version, which was a “classic supply shock that slowed economic growth,” explains Moody’s chief economist Mark Zandi Businesshala. “As the pandemic winds pick up and the delta wave fades, inflation will slowly begin to moderate,” he predicts. It won’t happen soon — due to critical supply chain and labor market issues, he clarifies, but he expects inflation to be within range of the Federal Reserve’s target target by early 2023.

While “the worst is over” with supply chain disruptions, Zandi predicts that next year will help them moderate and reach a point where inflationary pressures will begin to ease. Moody’s chief economist believes economic growth will remain strong – and should pick up when inflation slides back down and the delta version fades. He points out that recent job numbers, retail sales, auto sales and unemployment insurance claims are all showing signs of improvement.

There is a high probability that the market will be more volatile in 2022 with “speculative signs” and higher valuations, Zandi says, adding that property prices will be “very vulnerable to higher interest rates”. If the Federal Reserve is to become more aggressive and push expectations, Zandi expects it to “go hard” for markets, with corrections on the horizon in 2022.

Jeremy Siegel

Professor of Finance at the University of Pennsylvania Wharton School of Business

Despite the Fed reiterating its stance That high inflation is “temporary”, other market experts are not so sure and predict otherwise. “I’ve been concerned about inflation for some time,” says Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton Business School. Predicting a cumulative inflation of between 20% and 25% over the next three or four years, he said, “The money supply boom we saw during the pandemic was unprecedented and was bound to lead to higher inflation. “

Siegel warned that if the market gets another poor consumer price index reading in December, “there is no question that Powell will be forced to accelerate tapering due to political and economic pressures.” Once the Federal Reserve gets more serious about tackling inflation, the market will bounce back, and “we can easily make a correction of 10-15%,” Siegel predicts.

“Once the Fed changes its stance on raising rates, the market will have to take a break at some point in early 2022,” he predicts. “But again the earnings have been fantastic – it’s a better established bull market than it was in 2000.” Economic growth should remain strong despite high inflation, as the delta version burns out and the economy reopens, he says. “We could easily see 4% to 5% GDP growth next year.”

Mario Gabelic

Gamco. founder of

Billionaire and Famous Value Investor Mario Gabelli, who started his investment firm Gamco in 1977, also expects inflation to continue. “This is a cycle that has its legs,” he says, predicting that interest rates will rise.

While inflation will remain high, he expects economic growth — driven by solid corporate earnings — to continue, though the stock market may recover next year. Gabelli predicts that stock multiples are likely to contract over the next five to ten years due to tighter monetary policy from the Federal Reserve. “A lot of this additional liquidity is creating speculative bubbles that are not sustainable,” he says, “the stock market is cushioned in terms of rising earnings and fundamentals, but I see a potential correction of 10% to 15%.” gives. .”

The billionaire investor thinks that many companies will still be able to gain pricing traction, despite rising costs due to inflation, which should strengthen earnings and revenue numbers. For now, amid supply chain issues and a tight labor market, “companies are hedging inventory and raising prices,” he explains.

kathy wood

Founder of Arch Invest

on the other side of the spectrum, Growth investors such as Arch Invest’s famed stock picker Kathy Wood seem to have raised concerns about the current inflation “burst.” He predicted innovations such as AI and robotics to lead to productivity gains, which should help lower prices in the long run.

Wood pointed out that another factor acting against inflation is the strength of the American consumer, who has a lot of inventory at home. Businesshala In an interview last month. “When companies that might be ordering double and triple fill the shelves, they’ll probably find that the consumer has had enough.”

Lisa Foley

Zevenbergen. managing director of

There was a “knee-jerk reaction” According to the latest consumer price index data from October, $5.7 billion (assets) says Lisa Foley, managing director of Zevenbergen Capital Investments. “I don’t fear inflation as much as other people,” she says, adding that she expects it to be “transient.” Foley points out that even if inflation takes some time to moderate, economic growth and corporate earnings will remain strong.

“There are still a lot of industries that will generate significant gains in this environment,” she says, adding that many companies will continue to see strong revenue growth despite inflation because they are able to deliver pricing to customers without hurting demand.

Matthew McLennan

Co-Head of Global Values ​​at First Eagle Investment Management

“I can’t remember a time when more companies were talking about labor shortages and raising prices,” says Matthew McLennan, co-head of the Global Values ​​team at First Eagle Investment Management. “We’ve added tons of demand, but the supply side hasn’t come back.”

McLennan expects inflation to ease somewhat before settling at 3% or 4%. “There are a lot of question marks for the economy going forward – the growth of the next few years could be less than the previous generation,” he warned.

Their main concern, which could lead to market volatility, is that the “Fed is behind the curve” with its policy response. The central bank has not yet tightened its policy enough to deal with an environment of high inflation, he says, instead allowing the economy to steam up by allowing inflation to run above the trend.

“You can’t discount the possibility that the Fed made a policy mistake, for fear that the market will react sharply at some point,” McLennan predicted. “If we enter a window of greater market volatility due to rising fears around inflation, the Fed may find it difficult to tighten monetary policy and find itself in a Catch 22,” he says.

Mohamed Al-Arian,

Allianz. Chief Economic Advisor in

“I think the Fed is losing credibility,” Allianz’s Chief Economic Adviser Mohamed El-Erian similarly said in a Interview Last week. The Federal Reserve reiterates the mantra that inflation is transient, but it is not, saying: “It is not transient… it will last a while.”

El-Erian pointed out that companies charging higher prices, supply chain disruptions lasting longer than expected and consumers hoarding products prematurely, all put additional pressure on inflation. He called on the Fed to “re-establish a credible voice on inflation” and “accelerate, in December, the pace of tapering,” not “start preparing people for higher interest rates.”

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