The novel Coronavirus just doesn’t seem to stop, with the impact growing by the day, causing huge losses to the global economy. To fight the slowdown, the US Government had announced a $2 trillion stimulus package, which to help the workers meet ends. However, financial analyst and economist Alex Kruger thinks that this move of injecting money in the economy is likely to attract the risk of inflation in the long run.
Kruger posted a thread on Monday, in which he said such packages increase inflationary risks.
Short-term MMT may have arrived. The devil is in the details. The Fed will be monetizing unlimited government bond issuance.
“in the amounts needed to support smooth market functioning…”
In other words, the government can now spend all it wants.
— Alex Krüger (@krugermacro) March 23, 2020
“This Fed announcement laid the field for the government’s $2 trillion stimulus package, currently under negotiations. This is how free money looks like. But there is no such a thing as a free lunch, is there. Society pays for this. Via inflation. The price to pay is inflation in the long run. Inflation expectations are popping and the long end of the treasuries curve is already pricing it in.”
He, however, also added that the market’s inflation expectations were low, as he indicated that the market participants expect the inflation to remain constant at the current average of 0.8% over the next ten years. He also highlighted that the spike in gold prices since the announcement was due to the fall in the interest rate, as negative real interest rates boost gold.