What I Learned This Week

Will Quantitative Tightening (QT), which is deflationary in theory, be inflationary in practice? The mounting evidence is saying "yes."

In WILTW July 27, 2017, we postulated that QT would have the opposite effect of QE, which was inflationary in theory, but deflationary in practice. Although QE was meant to be inflationary, the unintended consequence of the Fed’s “free money” was that it remained largely at the disposal of the banking system, which funneled the money to commodity expansion projects that had deflationary implications. Meanwhile, the growth in stock, bond and real estate values largely accrued to the top 1%—wealth that could not be spent by the population-at-large (see WILTW October 12, 2017). However, as we wrote last week, both the monetary and fiscal policy regimes that kicked-off the deflation trend of 201…

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