A bumpy recovery for the economy
Inflation has been spooking markets, but the surging Delta variant poses a much greater risk
Many of us have fallen into the trap of black-and-white thinking during the pandemic, said Michael P. Regan in Bloomberg Businessweek. “The scintillating vision of the dark era of Covid lockdowns quickly giving way to a bright vaccinated future was simply too enticing to resist.” But the reality, as the virus stages a fresh assault, is a much less satisfying “grey area”. Stock markets have been reflecting the mixed message, presenting two visions of a recovery – one optimistic, one bumpy – in the same week. Prices lurched sharply downwards on Monday, but investors returned the following day determined to “buy the dip”. It looks like the pattern of things to come in what’s likely to be an “interesting” quarter – guaranteed “to test your stomach”.
At the heart of the market debate is the question of inflation, said David Brenchley in The Sunday Times. “The possibility that the Delta variant could slam the brakes on the economic recovery” has brought to a premature end the so-called “reflation trade” – the idea that you should invest to prepare for higher inflation, and rising interest rates. Yet, at the same time, many investors worry that rising inflation could force central banks to withdraw their unprecedented pandemic support “sooner than expected” – prompting market shocks around the world.
The US inflation rate rose to 5.4% in June, said Patrick Hosking in The Times – the highest in more than a decade. This “is a dark cloud that even the most cheerful investor struggles to ignore” because of what it means for corporate valuations. The US Fed is sticking with its story that “this inflation burst will be transitory only and can be largely ignored”. But surveys show US households “aren’t so sure”. That’s important, because “it is not merely official interest rate rises, but expectations of interest rate rises” that move markets.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
“A little inflation is no bad thing,” said former IMF chief economist Kenneth Rogoff in the FT. “Prices are rising mainly because the US economy is doing vastly better than seemed possible a year ago.” Indeed, the “bigger risk” remains “an unexpected setback in the fight against the pandemic”.
The same is true in Britain, where the Bank of England is showing signs of waking up to the inflation danger, said David Smith in The Sunday Times. Chancellor Rishi Sunak may not welcome the impact of rising rates on the Government’s debt bill. But he’d face a far worse headache if a worsening health situation forced the Treasury “to wheel out its pandemic support again”, including restarting the furlough scheme. Its huge fiscal response was based on the understanding it would be time-limited. “The Chancellor has every reason to pray that the path to freedom, while bumpy, does not include any U-turns.”
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Why is Bluey such a cultural phenomenon?
In the Spotlight Kids are obsessed — but parents get just as much out of the show, if not more
By Anya Jaremko-Greenwold, The Week US Published
-
Is it actually economical to fly basic economy?
The Explainer Airlines have placed so many restrictions on basic economy, you may wonder if it's even worth the savings anymore
By Becca Stanek, The Week US Published
-
So bad, so good: the best worst movies
The Week Recommends These films are as enjoyable as they are terrible
By Anya Jaremko-Greenwold, The Week US Published
-
Shein: could the year’s mega-IPO fall apart at the seams?
Talking Point Latest hitch is a pre-float 'security review' that could deter potential investors
By The Week UK Published
-
Labor market strong as inflation sinks
Feature And more of the week's best financial insight
By The Week US Published
-
Midair blowout: another black mark for Boeing
Feature This isn't the first production issue Boeing has encountered
By The Week US Published
-
Behemoths of the seas
The Explainer Cruise liners keep getting bigger, with the world’s largest 'megaship' ever built set to make its maiden voyage this month.
By The Week Staff Published
-
Holiday season: Fed optimism cheers investors
Feature The feds believe their 'pivot' will make a recession unlikely
By The Week US Published
-
Older workers stay in the labor force
Feature And more of the week's best financial insight
By The Week Staff Published
-
America's most in-demand job
Feature And more of the week's best financial insight
By The Week US Published
-
Currency: the long reign of the mighty dollar
Feature Argentina is planning to drop the peso in favor of the US dollar
By The Week US Published