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Economy is 'sitting on a time bomb': Deutsche Bank warns of 'devastating' effects of inflation : https://www.kitco.com/news/2021-06-08/Economy-is-sitting-on-a-time-bomb-Deutsche-Bank-warns-of-devastating-effects-of-inflation.html


Excerpts:
The world is leaving its previous low inflationary environment. This shift has been accelerated by the massive monetary response to the coronavirus pandemic.

"It may take a year longer until 2023, but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed's priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb," Folkerts-Landau said. "Sovereign debt has risen to levels unimaginable a decade ago with large industrial countries exceeding red-line levels of 100% of GDP."

This crisis has been a different beast altogether, primarily because of the amount of stimulus that has been introduced into the economy. Congress has passed more than $5 trillion in pandemic-related stimulus so far. On top of that, the Fed has nearly doubled its balance sheet to almost $8 trillion.

"Already, many sources of rising prices are filtering through into the U.S. economy. Even if they are transitory on paper, they may feed into expectations just as they did in the 1970s," the report said. "The risk then, is that even if they are only embedded for a few months, they may be difficult to contain, especially with stimulus so high."

In the meantime, U.S. Treasury Secretary Janet Yellen stated that President Joe Biden's $4 trillion spending plan should go ahead even if it sets off higher inflation that could last into next year and leads to higher interest rates.

"If we ended up with a slightly higher interest rate environment, it would actually be a plus for society's point of view and the Fed's point of view," Yellen told Bloomberg on Sunday