The Outlook for Inflation

Apollo Chief Economist

Demographic trends will weigh on inflation over the coming decades, but the secular stagnation forces pulling inflation down are currently being offset by upward pressures on inflation coming from deglobalization, energy transition, defense spending, restrictions on immigration, easy financial conditions, and easy fiscal policy.

Put differently, the structural forces pushing inflation down are currently being offset by cyclical forces putting upward pressure on inflation.

That’s the reason why interest rates will not only be higher for longer in the short term but also in the longer term, see also the second chart, which shows that the market is currently pricing that the Fed funds rate will be between 4% and 5% over the coming years.

Secular stagnation driving interest rates lower over the coming decades
Source: UN Population statistics, Haver Analytics, Apollo Chief Economist
Interest rates will remain permanently higher
Source: Bloomberg, Apollo Chief Economist

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