Is This Inflation Balloon Gonna Pop?

 

In the past few days, biz news has been dominated by jitters around your favorite concept from Econ 101. No, not how to flirt with people in the library using only eye contact—inflation.  When we say jitters, we mean market shifts. The yield on the 10-year US Treasury note is at 1.36%, a big jump from the 0.9% where it started the year (remember, higher yield = lower price = investors are dumping their bonds), while copper and oil have spiked. Translation: Investors think economic growth is about to hit ludicrous speed and they're running for cover in assets that hedge against inflation.  Inflation? During a pandemic? Some have sounded the alarm due to the double whammy of 1) Congress's historically huge relief packages and 2) the Fed's efforts to spur liquidity. Both are geared toward helping the economy through the Covid crisis and could theoretically lead to inflation. Plus, inflation is like a midafternoon snack—once it gets going, it can build momentum and spiral out of control.  Tech shares in the US and Europe have slumped in anticipation of potential interest rate hikes, a move central banks might make to keep inflation at bay. But many economists say there's no need to worry  Including the ones who actually oversee the economy. Treasury Secretary Janet Yellen and Fed Chair Jerome Powell both said in recent days they're not worried about inflation, and Powell signaled yesterday he'll keep interest rates low where Lil Jon wants them. These soothing words helped stocks mount their big comeback yesterday.  Both officials also called for more spending to ease the economic hardships Americans are facing, noting that millions of people are still unemployed.  Zoom out: Indicators of inflation usually show up in the job market; when it overheats, inflation can start to snowball. But the current job market is like the frozen burrito you threw in the microwave—hot on the surface (high yearly wage growth), but icy at the core (elevated unemployment claims).