Prince Bridgewater rejects the return of the “Great Inflation” of the 1970s


A top investor in the world’s largest hedge fund said that he does not expect the “Great Inflation” of the 1970s to repeat itself, which is the latest sign that many large fund managers are preparing to deal with milder price pressures.

Bob Prince, who runs Bridgewater Associates with Ray Dalio and Greg Jensen, told the Financial Times that the power of long-term deflation will eventually curb recent price increases. Although “you will get some inflation”, it will be “moderate”.

The co-chief investment officer’s remarks come as Wall Street is actively debating whether the booming economic recovery, massive fiscal and monetary stimulus measures, and supply chain issues will cause the prices of goods and services to continue to rise.The consumer price index is one of the most watched inflation indicators, with the largest surge last month 13 years At a rate of 5% per year.

Prince and other managers have hinted that the sharp rise will be temporary; more than 70% of fund managers surveyed by Bank of America this month said that they don’t expect the rise in inflation to be permanent.

“It is unlikely that private sector credit and spending will lead to a major inflation cycle,” he said. “The government has to vigorously implement fiscal stimulus measures to push things forward. In addition, when you look at inflation, low inflation is a global phenomenon. This is not a US phenomenon.”

Last week, Fed policymakers said that they are closely monitoring the rise in inflation indicators and may respond. Raise interest rates The fastest year is 2023, at least one year earlier than what they had previously expected.

Financial market Suddenly reacted As the U.S. central bank shifted, the 10-year breakeven interest rate, a market indicator of future inflation expectations, fell to its lowest level since early March. Senior Fed officials, including Chairman Jay Powell, said they believe that inflation will only be short-lived.

Prince pointed out that although the US monetary policy is still loose, central banks and governments elsewhere have not acted with the same force to promote growth. In fact, some are turning in another direction.In recent weeks, central banks have been Brazil with Russia Interest rates have been raised to curb inflation.

“If you go back to the 1970s… you didn’t print money back then, but you have credit growth. You have very strong collective bargaining, unions,” he added. “You relaxed the control of the commodity market… So commodity prices soared, oil prices soared. You have a lot of things that don’t exist today.”

Key indicators of inflation More than 10% In the 1970s, due to excessive loose monetary policy and price shocks Food and energy Trigger a cycle of economic destruction that is difficult to break.

The line chart of CPI year-on-year change (%) shows that Fed policymakers lost control of price stability in the 1970s

The chief investment officer of Bridgewater said that he is looking for red flags today, including continued labor wage growth, which may appear before the unstoppable “self-reinforcing cycle” of inflation. “We have not crossed that point. This is still a reasonable possibility.”

Prince added that the Fed’s shift will not eliminate “inertia in the economic system” because the savings rate remains high and it can fund consumer spending in the coming months. “Even if the central bank withdraws, there is still a lot of potential spending in the system accumulating,” he said.

Nevertheless, Prince does not expect retail trading activity in the $49 trillion U.S. stock market to continue to surge at the same rate, and during the pandemic, many people place cash in the market.

In the past month, transactions for companies such as movie chain AMC Entertainment and video game retailer GameStop (so-called meme stocks) have flourished. Charming trader Given that the valuation has risen sharply.

Prince said: “We may have seen the peak period of retail inflows into the stock market.” “People will return to earning income, rather than the government throwing money at you, so a more normal environment.”

Prince said Bridgewater’s funds “have grown very well this year. This is a good year.” He did not disclose the specific performance of the company’s passive all-weather fund, which invests in different markets based on volatility, or more. Pure Alpha, a traditional macro hedge fund. The company manages $150 billion in assets.

Great inflation

The growth rate of U.S. consumer prices has soared from less than 2% in 1965 to more than 10% During the “Great Inflation” period of the 1970s. It set a high level of inflation in the postwar period in the United States and caused significant damage to the economy.

Decades later, the cause is still the subject of intense debate—but many economists agree that this period provides an illustrative example for today’s policymakers and investors.

Most theories believe that the main reason for the inflation boom is Too loose Monetary Policy. Economists have different views on the weight of the Fed policymakers’ attempts to “opportunity” to overheat the economy to avoid a recession. “doom” And technical errors that lead to price instability decisions.

Princeton economist and former senior Federal Reserve official Alan Blind believes that factors outside the economy Central bank control The shocks of food and energy prices during the two periods of the 1970s also contributed significantly to the Great Inflation. He also assumed that the end of wage price controls during the Nixon era exacerbated the fire of inflation.

The end of the legend began on October 6, 1979, when Paul Volcker’s Federal Reserve Begin to actively tighten monetary policy exercise This brings the central bank’s main interest rate to 17.6% By April of the following year, it was even higher in 1982. The radical correction triggered two recessions and caused the unemployment rate to rise, but finally ushered in a period of more stable prices.

Adam Samson



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