US: Inflation to run between 2-3% in the aftermath of pandemic – JP Morgan

Looking to 2022 and beyond, inflation will be primarily determined by its long-term drivers. Economists at JP Morgan believe the headwinds to inflation have eased and the tailwinds have strengthened, potentially pushing inflation to a new range of 2-3% over the long-term.

Further increase in inflation expectations and interest rates

“The widespread rollout of vaccinations has unleashed powerful pent-up demand in the US economy, sending prices higher across a variety of sectors. Although inflation is now tracking well above the Fed’s 2% target, we agree with the Fed that much of this surge is likely transitory.”

“There are aspects of the current inflationary surge that may persist and keep inflation elevated in the medium-term, particularly higher wage pressures, rising inflation expectations and the potential for faster increases in owners’ equivalent rent.”

“As we look to 2022 and beyond, we believe a shift from secular headwinds to secular tailwinds could result in modestly higher inflation in the long term. Consequently, we may be entering a ‘new-old’ normal where inflation runs persistently between 2-3%.”

“Higher trend inflation and a normalization of monetary policy should result in higher interest rates, which may leave us with a different set of winners and losers than in the prior expansion. As valuations become more important, the rotation from mega-cap stocks to the rest of the market should continue, along with the rotation from growth to value and from domestic to international stocks.”


This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments