Macro Hive Pro: The 1970s Redux? No
- By Dominique Dwor-Frecaut
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- 5 minutes read
Summary
• The oil price surge is comparable to that of the 1970s, but the US economy is now much less exposed to energy prices.
• While the pandemic caused a supply shock, this is likely almost over.
• Largely because of weaker worker bargaining power, the risk of a 1970s style wage-price spiral is much lower. Rather, households’ real income is falling, weakening demand and helping contain inflation.
• The ongoing fiscal retrenchment will further weaken demand and slow inflation.
Market Implications
• Curve flattening, bond-stock correlation to turn negative again.
Summary
• The oil price surge is comparable to that of the 1970s, but the US economy is now much less exposed to energy prices.
• While the pandemic caused a supply shock, this is likely almost over.
• Largely because of weaker worker bargaining power, the risk of a 1970s style wage-price spiral is much lower. Rather, households’ real income is falling, weakening demand and helping contain inflation.
• The ongoing fiscal retrenchment will further weaken demand and slow inflation.
Market Implications
• Curve flattening, bond-stock correlation to turn negative again.
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