Deglobalization and Central Banking

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There are two opinions on the path for inflation. The widely held view is that inflation will return to pre-pandemic levels as the pandemic-related supply and demand distortions normalize. A lesser believed theory is that this surge in inflation, unlike others over the last 30+ years, will be persistent. I initially discussed why this might occur in Persistent Inflation Scares the Fed. This article considers a change in behavior that would generate a price-wage spiral. Given the significance of inflation for economic growth, Fed policy, and ultimately asset prices, it's worth exploring deglobalization, another argument for persistently high inflation.

In his article, War and Interest Rates, Zoltan Pozsar made a strong case that hot economic wars will change the global economic landscape, reversing decades of the benefits of economic globalization and resulting in higher levels of inflation than we are accustomed to. The outcome may change monetary policy goals from supporting asset markets and encouraging debt to managing geopolitical change and deglobalization.

Zoltan is the global head of short-term interest rate strategy at Credit Suisse. His opinions are often alternative. Whether you agree with him or not, he provokes a high level of thought.

All quotes in this article are from Zoltan unless otherwise noted.