US inflation 2010-2022
One consequence of this high inflation is the meteoric and unstoppable rise in rates that we have witnessed in 2022, which has gone from 0.25% to 4.5% in one year in the United States, representing the fastest rise in the last 40 years.
It looks like inflation is taking hold and will stay with us for quite some time.
If we look at the Fed’s forecasts on the future evolution of interest rates, we see that they are going to remain in ranges much higher than those that the markets are used to. The forecast for next year is to continue with these increases and that they stop at some point between 5-5.25%, to gradually decrease from there.
As for growth, the US monetary agency forecasts a growth range of between -0.5% and 1%, hinting that the possibility of a technical recession is there.
The Federal Reserve’s forecasts indicate that this recession would not leave massive unemployment, since in the worst scenario they propose we would be talking about an unemployment rate of 5.3%; far from the 10% of the last financial crisis.
Structural trends: population growth and aging
A few days ago, we had breakfast with the news that the world had reached 8,000 million human beings.
Population growth can come in two ways: the first is the increase in birth rates that is taking place in developing countries, and the second is the increase in life expectancy, both in developed countries and in paths of development, although especially in the former.
The aging of the population derived from the increase in life expectancy implies a smaller workforce to meet global needs, which means lower growth and higher inflation. The countries of the EU and Japan are going to be the ones that suffer the most. Economies with younger cohorts will be more exposed to growth, but they have an important counterpart, which is that they will need to broadly develop their institutions and governance to be “investable” countries for investors.
Immigration from developing countries to developing countries is the only thing that can “save” the latter from dying of success.
Private equity is likely to suffer after the boom years in which capital inflows have been incredible. But this should be offset by the opportunity that arises in the infrastructure sector, which, as Brookfield rightly says, is “the backbone of the economy.” The gap between current current needs and current investment is $15T.
As Blackrock rightly says in its 2023 Global Outlook, portfolios are going to have to be composed and adapted in a totally different way to what was done in the Great Moderation (90’s) and in the last global financial crisis. We are facing a new scenario for the majority of investors, who were unaware of inflation or positive interest rates. It is time to be open to new ideas and try to be pragmatic in the analysis. Changes in the cycle are moments of uncertainty, but also of opportunities.
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