The events of summer could dictate the way forward for financial markets. Now the tide seems to have turned on the virus vaccination program, the big questions are how and when the extraordinary government measures will be lifted.
This will be most important in the US, Taylor said, as the economy will likely be fully open by July. With consumer balance sheets filled with incentive money and spending catching up, it drives demand – and prices – for everything so high as supply chains struggle to keep up.
Taylor said: “Whether our economy is in a ‘transition’ is at the heart of the debate. Central banks usually have an inflation target in mind; If the inflation rate gets too high, they will take measures like quantitative easing to counter it.
“At the start of the pandemic, central bankers were out telling everyone they would be ready to ‘let things get hot’ and not tap into breaks too quickly. But with signs of inflation popping up everywhere, have we reached the point where it cannot be ignored? Do prices normalize when supply chains resume normal production levels? Was that a slip up? These are the questions everyone will be concerned with as they oversee the next move by central bankers. “
For investors, it’s about maintaining their purchasing power, hence the demand for real estate like real estate and other commodities, while commodity currencies like the loonie have outperformed. The big question is whether these trends will continue as banks reverse course and try to control inflation by lifting the contingency measures.