Raghuram Rajan: Inflation, Higher Rates and Slower Growth to Come

Plan for long-term Inflation that will be fought aggressively by the Fed, higher policy rates, and slower economic growth, according to Raghuram Rajan.

Rajan is a professor of finance at Chicago Booth. He was a governor of the Reserve Bank of India between September 2013 and September 2016. Between 2003 and 2006, he was the chief economist and director of research at the International Monetary Fund. He delivered a keynote presentation at the Morningstar Investment Conference in Chicago on May 16.

His presentation covered the near-term outlook and the bigger picture changes that will affect investing.

The economic outlook is affected by the pandemic and the fiscal response to it, both in the U.S. and globally, as well as the war in Ukraine and concerns around Fed policy. China’s response to the pandemic is troubling, Rajan said, especially its low rate of vaccination. About 25% of China’s economic activity is now reduced by lockdowns, which has carry-on impacts globally.

The pandemic caused Americans to spend on replacement goods (like Pelotons and food deliveries) and increased demand tremendously. This was amplified by fiscal stimulus that went to consumers. Global supply chains were hit by lockdowns, most recently in Taiwan and China. Labor supply tightened. Typically, he said, in a recession, the labor participation goes up; but for the first, time, it fell at the outset of the pandemic recessions. That was from fear of the virus and the need to stay at home for childcare, according to Rajan.