Harrison: The Potential for Inflation is at Its Greatest Now

Your Real Vision Daily Briefing for March 24, 2020

Ed Harrison and Ash Bennington discuss the latest developments on a day when the Dow closed up more than 10%, but tail risks appear to be building.

  • The Dow closed up more than 10% today, but tail risks of the COVID-19 crisis appear to be building, say Ed Harrison and Ash Bennington for Real Vision. 
  • As the PMI contracts dramatically, major companies like Delta Airlines reach junk status, and partisan discord sows fear and uncertainty, fiscal and monetary policy face huge challenges.
  • Harrison and Bennington predict an advent of inflation and unprecedented market volatility as the crisis continues to unfold.

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The stock market rallied more than 10% on rumors of a final stimulus deal, but where fiscal and monetary policy go from here remains to be seen as output contracts and the threat of inflation grows, according to Ed Harrison and Ash Bennington in today’s Real Vision Daily Briefing.

As the US moves in the direction of Italy, the lockdown is driving us further into an economic depression, they said. 

Delta Airlines, which was A2 last year, was downgraded to junk status by S&P, threatening to put it and other major players like it outside of the Fed’s bailout umbrella. Bennington thinks the Fed is in a no-win situation, but he believes they will still intervene, even if the division between fiscal and monetary policy erodes a bit.

“It sounds like it is all hands on deck. Nothing is off limits. [The Fed is] going all in to do whatever it takes to save the economy,” he said.

The ultimate impact of the lack of output caused by the lockdown may be the return of inflation. More than governments printing money, Harrison and Bennington say loss of output is inflation’s biggest driver.

“The potential for inflation is, I would believe, at its greatest now under most anyone’s definition of when inflation comes about,” Harrison said.

Another broader implication of the crisis, according to Harrison and Bennington, is an unprecedented level of volatility in the market as the public continues to react to the news cycle.

“I don’t believe from a fundamental level, in previous cycles, you would see the level of volatility that we’re seeing now,” Harrison said.