In his latest presentation titled, In Search of a Steady State: Inflation, Interest Rates and Value, Aswath Damodaran explains why the inflation genie is out of the bottle. Here’s an excerpt from the presentation:
The inflation genie is out of the bottle, and if history is any guide, getting it back in is going to take time and create significant pain.
It is the lesson that the US learned in the 1970s, and that other countries have learned or chosen to not learn from their own encounters with inflation. It is the reason that when inflation made itself visible in the early part of 2021, I argued that the Fed should take it seriously, and respond quickly, even if there existed the possibility that it was transient.
Needless to say, the Fed and the administration chose a different path, one that can be described as whistling past the graveyard, not just ignoring the danger with happy talk, but also actively taking decisions that only exacerbated the danger.
Needless to say, they now find themselves between a rock (more inflation) and a hard place (a recession), and while you may be tempted to say “I told you so”, the truth is that we will all feel the pain.
You can watch the entire presentation here:
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