Markets seem to be missing the risks on US inflation

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US Inflation updates

The writer is director of investment research at Bridgewater Associates

The US economy today is about as strong as it has been in generations, with the tightest labour markets and highest inflation rates seen in decades. That is even accounting for a recent moderation of growth driven by the spread of the Delta variant of Covid-19, reflected in Friday’s disappointing August jobs data.

Yet financial markets continue pricing in both that the inflation will prove transitory and that policymakers will barely need to budge in response. We see this potential combination of outcomes as unlikely.

Let’s first consider the outlook for inflation — persistent or transitory? We certainly would not expect the record-high consumer price prints from earlier this year to be sustained.

But aggressive fiscal stimulus (including another $2-3tn in spending…

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