The Great Debate UK
Investors like simple narratives, which is why markets swing erratically and illogically between extremes of hope and fear. Reality is more complex. As F. Scott Fitzgerald remarked “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time”.
The bond market is currently struggling to reconcile contradictory fears about inflation and recession, not always successfully.
The medium-term outlook for the U.S. economy is dominated by the risk of inflation as massive injections of liquidity eventually fuel a rebound in economic activity accompanied by widespread price increases, starting with oil and other commodities and spreading to the rest of the manufacturing system. In effect, this would be a destabilising repetition of conditions that characterised the period between 2004 and 2008.