THE underlying economy (U.S. and global) has a strong deflationary bias. Central banks can’t tolerate deflation, so they respond with inflationary measures such as money printing, zero rates and guarantees of all major securities markets.
Those policies won’t actually cause inflation, for reasons explained below. But, they will cause bubbles in certain asset classes, especially stocks.
There’s a serious question as to whether the central bank “inflationary measures” will actually work. They won’t.
Powell can talk all he wants about asymmetric inflation targeting and letting the economy run a little “hot” for longer than expected, as he did in his Jackson Hole speech on August 27, but he doesn’t actually know how to make inflation happen.
