What inflation experts ‘see’ – and how they think it will affect markets

If one considers that one pays more for everyday goods, it is because they are indeed more expensive. Inflation is rising at the fastest pace in 30 years and does not appear to be slowing down any time soon. Some experts say high inflation is just a temporary phenomenon, while others believe it could remain high for quite some time next year – or longer.

The Consumer Price Index, a key measure of inflation, rose 6.2% in October compared to the previous year, according to the latest figures from the Bureau of Labor Market Statistics. Supply chain problems and labor shortages have exacerbated the situation. Terrified investors are now looking to 2022 and wondering how the Federal Reserve will react if inflation does not subside and return to the US Federal Reserve’s 2% long-term target.

Although investors’ fears of rising prices continue to grow, they have not yet derailed markets. The shares remain close to their all-time highs – boosted by strong corporate earnings in the third quarter – and look ready for another rally during the festive season.

However, market analysts and economists surveyed by Forbes strongly believe that inflation has come to stay, which could eventually derail markets. They also remain optimistic about US economic growth in the long run, even though they “see” a period of higher costs. ” next year.

The Federal Reserve announced last month that it would begin reducing the unprecedented stimulus it has provided to markets since the pandemic began, which also makes investors wary.

Minneapolis Fed Chairman Neel Kashkari said in an interview with CBS News earlier in November that investors should not “overreact to some of these temporary factors.” measurements in the coming months, before they start to decline “, he added.

But let’s look at the inflation estimates of some of Wall Street’s top players.

Mark Zandi

Moody’s Chief Economist

The current rise in inflation is largely due to the pandemic and more specifically to the Delta mutation, which caused “a classic supply-side shock that slowed economic growth,” said Moody’s chief economist Mark Zandi.

“As the pandemic subsides and the Delta strain weakens, inflation will gradually begin to subside,” he said. By the beginning of 2023, inflation will be close to the target set by the Federal Reserve.

Although the “worst is over” for supply chains, it will take some time next year to ease supply problems and get to the point where inflationary pressures will begin to subside, Zandi predicts. that economic growth will remain strong – and indeed should accelerate as inflation recedes and the Delta mutation weakens.

Recent data on jobs, retail sales, car sales and unemployment benefit applications show signs of improvement, he points out.

However, there is a good chance that markets will be characterized by greater volatility in 2022, with “signs of speculation and high valuations,” Zandi said, adding that asset prices would be “very vulnerable to higher interest rates.” If the Federal Reserve needs to act more aggressively and accelerate interest rate hikes, Zandi expects “difficult times” for the markets in 2022, with a correction looming on the horizon.

Jeremy Siegel

Professor of Economics at the Wharton School of Business at the University of Pennsylvania

Although the Fed has repeatedly said that high inflation is “temporary”, other market experts are not so sure and “see” the opposite.

“I’ve been worried about inflation for a while now,” said Jeremy Siegel, a professor of economics at the University of Pennsylvania’s Wharton Business School. “Inflation”, he adds, estimating that cumulative inflation in the next three or four years will reach 20% to 25%.

Siegel warns that if the market receives another “bad” measure of the Consumer Price Index in December, “there is no doubt that Powell will be forced to accelerate tapering due to political and economic pressures.” Markets will experience “turmoil” when the Federal Reserve decides to take inflation more seriously, and “we could easily see a 10% -15% correction,” Siegel said.

“Once the Fed changes its stance on raising interest rates, the market will have to take a break at some point in early 2022,” he said. much better established upward market than it was in 2000 “, he notes.

“Economic growth should remain strong despite high inflation, as the Delta mutation weakens and the economy continues to restart,” he said. “We could easily see GDP growth of 4% to 5% next year,” he added.

Mario Gabelli

founder of the investment company Gamco

Billionaire and well-known “value” investor Mario Gabelli, who founded the investment company Gamco in 1977, also predicts that inflation will remain high. “This is a cycle that has a future,” he said, predicting that the result will be raising interest rates.

Although inflation will remain high, Gabelli estimates that economic growth – driven by strong corporate profits – will continue, although he could see a correction in the stock market next year.

Gabelli estimates that stock multipliers are likely to be curtailed in the face of the Federal Reserve’s tighter monetary policy over the next five to 10 years. “Much of this over-liquidity creates speculative bubbles that are unsustainable,” he said. ”.

The billionaire investor believes that, despite rising costs due to inflation, many companies will continue to pass on these costs, which should keep their profits and revenues strong. At the moment, amid supply chain problems and a limited labor market, “companies are offsetting their inventories and raising prices,” he said.

Cathie Wood

founder of Ark Invest

On the other hand, “growth” investors, such as the well-known for their choices Cathie Wood, founder of Ark Invest, believe that the worries about the current “explosion” of inflation are excessive.

Wood predicts that innovations such as artificial intelligence and robotics will boost productivity, which will help reduce prices in the long run.

“Another factor that ‘works’ against inflation is the power of American consumers, who have stocked up on goods,” Wood said in an interview with Forbes last month. “Once the shelves are full, they will probably find that consumers have enough stock,” he said.

Lisa Foley

CEO of the investment company Zevenbergen

Lisa Foley, CEO of Zevenbergen Capital Investments, which manages $ 5.7 billion in assets, described the reaction to the latest October data on the Consumer Price Index as “partly predictable.” “Foley points out that while inflation will take some time to subside, economic growth and corporate profits will remain strong,” she said.

“There are still many industries that will make significant profits in the midst of this environment,” he said, adding that many businesses will continue to see strong revenue growth despite inflation as they are able to pass on increased costs to consumers without hurting demand.

Matthew McLennan

co-head of First Eagle Investment Management Global Value

“I can not recall a time when most companies talked about labor shortages and rising prices,” said Matthew McLennan, co-chair of First Eagle Investment Management’s Global Value team. recover “, he notes.

McLennan estimates that inflation will moderate somewhat before stabilizing at 3% or 4%. “Many questions are being raised about the future of the economy – in the coming years growth may be lower than in the previous generation,” he warns.

His main concern, which could cause market volatility, is that the Fed is “behind the curve” in its monetary policy stance. The environment of high inflation, he notes, adding that it instead allows the economy to strengthen, allowing inflation to overcome the trend.

“It is unlikely that the markets will react strongly at some point, fearing that the Fed has pursued the wrong policy,” McLennan said. it finds it difficult to tighten its monetary policy and find itself in an absurd, unresolved situation “, he explains.

Mohamed El-Erian

Chief Financial Officer at Allianz

“I think the Fed is losing credibility,” Mohamed El-Erian, chief financial officer at Allianz, said in an interview last week. The Federal Reserve has repeatedly said inflation “It ‘s temporary, but it’ s not,” says El-Erian.

Companies are raising prices, supply chain problems are taking longer than expected and consumers are stocking up on premature goods, all of which are putting additional pressure on inflation, El-Erian explains. He called on the Fed to “re-establish a credible view of inflation” and to “accelerate tapering in December”, adding that it must also “start preparing the world for higher interest rates”.