Paradigm Shifts Impacting the Investment Landscape: China, Inflation and Monetary Policy
I think one of the big paradigm shifts certainly is US-China relations are now contentious. They’re going to be defined by competition, by an adversarial relationship, and that changes, certainly, the landscape.
Another paradigm shift, I think, as we get into the COVID world, it’s about the next stage of COVID, and we think the next wave is more going to be about learning to live with COVID, which will allow economic activity to be more normal than it’s been over the last year and a half. So, I think that is the next paradigm shift that, if we can get to that point, has significant implications.
The other paradigm shift would be on inflation. We haven’t had inflation in the US for decades, so none of us really know, with certainty, are these inflation surges we’ve seen in the last couple of months permanent or temporary? To us, the risks are there that this becomes persistent, and we don’t want to take that duration risk, but we will continue to monitor those.
Monetary policy is arguably more accommodative today by mandate and design than it has been for quite some time. And increasingly, we’ve seen central banks around the world talk about, not just achieving an inflation target, and not just to full employment, but a distribution of income within that employment, and that mandating more accommodative policy. That has also bled into fiscal policy, and we’ve seen very expansionary fiscal policy.