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:

  1. Technological progress was making it easy to meet demand with supply
  2. The financial crisis had wiped out individual savings, lower consumer demand
  3. Political gridlock constrained federal spending
  4. 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:

  1. Federal spending is at unprecedented levels ($4.7 trillion in Covid relief)
  2. 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)
  3. Individuals have high savings due to being at home from lockdown
  4. Virus lockdown policies have made it harder for companies to meet demand
  5. 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.