Saturday, June 18, 2022

We have long thought.................

.............that the psychological component to the economy was both underrated and undervalued.  One lesson taken away from Reagan and Trump is that optimism matters.  Faithful readers may remember that, while mostly fearless, we fear deflation more than inflation.

Ben Carlson weighs in:

There is a lot we still don’t understand about inflation, especially since there is such a huge psychological component to prices and spending by consumers.

Inflation could remain elevated for some time if governments continue to spend money or the energy crisis worsens.

But it also wouldn’t surprise me to see severe disinflation or even deflation if the Fed overplays its hand with interest rate hikes and we go into a recession.

Maybe we’re due for more economic volatility than we’ve had these past 4 decades. Or maybe the pandemic will be an outlier because there was so much economic weirdness going on.

It’s good to keep an open mind about what comes next in regards to both prices and financial markets.

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