Podcast on inflation in post-coronavirus era
Interview with Mohamed El-Erian, former CEO of large investment fund and chairman Obama's global development council.
He estimates 65% chance of persistent high inflation (over 5%), 30% chance it's transitory (lasts less than 2 years), and 5% chance the Fed will take decisive action to get ahead of the problem.
Host asks him why there wasn't inflation after Fed actions in 2008. He gives 4 reasons:
- Technological progress was making it easy to meet demand with supply
- The financial crisis had wiped out individual savings, lower consumer demand
- Political gridlock constrained federal spending
- Follow-on effect of 2 and 3 is that private investment was low, in anticipation of low demand
In contrast, he thinks the current situation is different:
- Federal spending is at unprecedented levels ($4.7 trillion in Covid relief)
- Fed liquidity is also very high (he cites $4 trillion, no sure where he gets that number. I think he's looking at balance sheet increase)
- Individuals have high savings due to being at home from lockdown
- Virus lockdown policies have made it harder for companies to meet demand
- Labor force drop-out also makes it harder to meet demand
In summary, he thinks the current situation is a combination of high demand and constrained supply, which will lead to inflation.