This could well be the year that inflation starts to smack the stock market. The current episode of What’s Ahead explains why.
Investors need to understand that there are two kinds of inflation: monetary and nonmonetary.
Last year most of the increases in prices came from pandemic disruptions, made worse by Biden Administration blunders. This is nonmonetary inflation.
The other type of inflation comes from the Federal Reserve printing too much money. Our central bank has been using a certain gimmick—reverse repurchase agreements—on an unprecedented scale to keep this mountain of money from cascading into the economy. But these kinds of ploys always end badly.
Moreover, the Fed has announced that come spring it will no longer be adding to its holdings in government bonds—which means higher interest rates than even the Fed anticipates.
And that’s bad news for the economy—and the stock market.