Taps Coogan – November 11th, 2020

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Amid the ongoing debate about inflation and deflation in the US, Dartmouth Tuck School of Business Senior Fellow Peter Fisher recently spoke with Bloomberg to weigh in with his opinion and warn about the risk of what he calls “mini-stagflation.”

Mr. Fisher warns that we may be simultaneously overestimating the strength of the economy and under-estimating the likelihood that companies will push through price hikes:

“I’m still worried about a sort of mini-stagflation economy. I don’t know why we can’t have high unemployment and prices pressing up. It looks to me like business will try to push through price increases where they can. This morning’s papers talk about the healthcare system pushing through Covid fees and PPE fees… We may get a funny little mix of price pressures and still high unemployment and I think that’s going to be very difficult signals for the Fed to navigate…”

” I am not worried about rampant inflation but I just think there’s going to be some places where we see pockets of it and that’s going to be hard for the Fed to fathom. Just catching up on the data, the way that inflation is calculated, the basket that we consume has changed dramatically and the inflation calculators haven’t caught up with that…”

Along the same lines, He notes that the treasury yield curve has actually steepened quite a bit since the start of the year despite its low level, a sign of reflation.

“There’s something that’s been missed which is… the spread from 2 to 10 year yields has been rather steep compared to anytime in the last few years… People have to focus on the slope of the curve, even at these ridiculously low levels…”

All of which points to a question that has been bubbling to the surface in financial circles. Is yield curve control inevitable?

There is more to the interview so enjoy it above.

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