Seems like everyone in the economic and investing worlds is obsessed with the question of when the Federal Reserve is going to begin cutting short-term interest rates. And it seems like that obsession completely ignores the bigger – and far more important – picture.
Why are we not returning to the GFC-to-Covid period of low rates and low volatility for asset prices?
The short version:
Deglobalization challenges
Greater corporate focus on redundancy rather than just lowest cost
Social pressure for "strongman" politics
Labor supply challenges
Materials/mineral supply challenges
Carbon reduction costs
Rising cost of capital for corporations
The long version:
"The next decade is likely to be influenced by a set of significant factors. These include the deepening challenges associated with deglobalization, a critical shift for businesses to prioritize securing their logistics rather than focusing solely on cost-efficiency, rising social and political pressure favoring populist leaders in response to widespread global wealth disparities, anticipated widespread labor strikes as workers seek better compensation in light of corporate profits, and forthcoming issues arising from a prolonged period of underinvestment in natural resource industries that is yet to impact the supply of critical materials.
The convergence of these long-term macro trends is profound and leads us to anticipate that inflation will surpass its historical averages over the last 30 years. Consequently, we expect the cost of capital to rise significantly and sustainably in the decade ahead. The potential for such an environment sets the stage for profound changes in the price behavior of financial markets. As the overall cost of issuing debt and equity becomes more cumbersome, it is highly improbable that volatility will remain as subdued as it currently is."1
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