![]() ![]() But this summer, the Fed updated their monetary policy framework saying: There was broad agreement that inflation should be guided towards a target of 2% while also never letting inflation rise much at all above 2% other than for very transitory periods. And so, unless we are also willing to forecast the possible failure of the US economic system, it is very unlikely that we will see hyperinflation over any meaningful investment time horizon.īut despite the range of possible outcomes for inflation being relatively wide, until just recently it was very clear what American monetary authorities believed was the acceptable range of inflation outcomes. Could inflation jump to crazy levels like 50% or 100% a year or more? While this has happened in failing states such as in Germany after World War I, Zimbabwe in the years just before the global financial crisis or Venezuela in recent years, there is no precedent for hyperinflation in functional economies. Could inflation in the US jump to 10% or more at some point in the future? Well it did in the 1970s, so this does seem to be a possibility we should consider. When thinking about the future range of possibilities, not only for the economy but for anything related to how human society will operate, we can often look to history for guideposts. If investors do not make these expectations explicitly, then they do so implicitly, often without realizing that these assumptions are driving their individual company assessments. Our message has been that while investors cannot hope to accurately forecast the behavior of the economy over the short term, it is inescapable that investors must maintain a set of expectations about the long-term path of macroeconomic variables. We’ve explored these concepts in posts such as Investing Under Conditions of Uncertainty and Pick Your Poison: Implicit vs Explicit Forecasts, both of which focused on how we think about incorporating macroeconomic assumptions into our evaluation of individual company investments. We’ve written in the past about the difference between thinking you can predict the future (hint: you can’t) vs being aware of the range of possibilities and the range of probabilities of each possible outcome. What you need is to recognize the possibilities and challenges offered by the present moment, and to embrace them with courage, faith and hope.” ― Thomas Merton “You do not need to know precisely what is happening, or exactly where it is all going.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |