Most measures of inflation are at multiyear highs. Headline inflation has gone up 5.4% over the last 12 months, and that’s a rate of increase that we haven’t seen in more than a decade.

Core inflation, which strips away some of the more volatile categories, is up about 4.0% over the last year, and that’s something that we haven’t seen going back well over 25 years now.

There are parts of the economy that were closed and that are now reopening. There’s pent-up demand for some activities. People want to do things that they weren’t able to do during COVID.

Supply side is harder. You have to source materials, you have to rehire workers, you have to restart production processes. And what we’ve seen is that a lot of producers have simply struggled to do that. We talk about it in the context of bottlenecks in the supply chain and difficulty sourcing materials, and all of these things are true. And if you think back to basic economics, when demand is running ahead of supply, prices tend to rise. And that’s exactly what has happened.

The question, of course, is what that means going forward. Our expectation is that while this won’t go away soon, we do think that over the course of the next few months, inflationary pressures will likely ease. Our expectation is that toward the end of next year, inflation will likely settle in a range between 2.0 and 2.5%. That’s higher than where it was precrisis, where it generally traveled between 1.5 and 2.0%, but quite a bit lower than it is now—and much less likely to cause alarm.

With the economy well on the road to recovery, with GDP back to where it was precrisis and likely to be back to where it would have been without COVID within the next couple of quarters, and with inflation running hot, we do expect the Fed to taper. And our general expectation is that they will do so in November, or perhaps December at the latest.

But really, we think the focus should be more on when they end quantitative easing rather than when they start tapering. And on that, the Fed has been pretty clear. They expect to be done with this by the middle of next year. And the reason that that’s more important is because it isn’t until they have finished quantitative easing—that they’re done tapering—that the Fed could seriously contemplate raising interest rates. And so we think that the earliest the Fed is likely to raise interest rates is the fourth quarter of 2022. And in fact, our current forecast is that they won’t raise interest rates until 2023. And the reason is that inflation is only half of what the Fed is worried about.

The other half is the labor market. There are still, roughly speaking, 6 million people out of work who were working prior to COVID, and our expectation is that the Fed will want those people to get back to work before they think about rate hikes. The way that the central bank has put it is that they want to see the economy at full employment. They want to see inflation at target and likely to stay that way for some period of time before they raise rates.

The bar to starting a taper—to reducing quantitative easing—is quite a bit lower. They just need to see progress toward those objectives to reduce their asset purchases.

Another thing that has caused concern among investors and economy watchers is the possibility of stagflation, a period in which inflation is high and growth is low. Yes, the economy is slowing, but it is slowing from a very rapid pace of growth in the aftermath of COVID. When the economy reopened, it boomed, as you would expect, and it shouldn’t be cause for alarm to see the pace slowing to something more sustainable.

We’re looking at growth between 3.5 and 4.0%. That’s very, very far from stagflation. And so, despite the coverage around that, we don’t think that the combination of inflation that is high today and slowing growth should cause alarm for investors. It simply represents a downshift to a more sustainable equilibrium.

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