The coronavirus pandemic has subsided, but New Normal may not look the same as in 2019.
One of the reasons is that inflation has raised prices for some goods and services, which could continue to rise, especially if the government pushed for President Joe Biden’s $ 6 trillion spending plan. There is.
According to CNBC’s latest billionaire survey, this is a major concern for most wealthy investors. According to the report, 65% of millionaires are concerned about inflation caused by recent government spending. 34% of them said they were very concerned.
The survey was conducted online by Spectrum Group on behalf of CNBC in April and May, with 750 respondents with investable assets of more than $ 1 million.
According to the US Department of Commerce, the core price index, which is a key indicator of US inflation excluding volatile gasoline and food costs, rose 3.1% in April. This was above expectations of 2.9%, the 1.9% inflation seen last month. Including food and fuel, the gauge was 3.6%, the fastest pace in 13 years.
The Federal Reserve Board usually expects this measurement to be around 2%. However, after the pandemic recession, the Fed says it will raise inflation a bit more and boost employment.
Inflation can be a problem for both consumers and investors, especially if it is persistent and persistent. The higher the cost, the greater the burden on the wallet, and the overall environment can adversely affect high-risk assets.
In an interview with CNBC’s Squawk on the Street on Tuesday, Goldman Sachs U.S. equity strategist David Kostin said, “Generally speaking, equities are in a low-inflation environment rather than a high-inflation environment. “Or, a decline in inflation is generally better than a rise in inflation.”
Breaking inflation concerns
Many investors are concerned about inflation, but some groups consider inflation more problematic than others. For example, 85% of Republican billionaires are worried about rising prices, compared to 42% of Democratic millionaires.
Young investors are more worried than older ones. 52% of millennial billionaires say they are “very worried” about inflation, while 40% of Generation X and 31% of baby boomers surveyed are “very worried” about inflation. Overall, men were more concerned about inflationary pressure than women.
Another reason rising inflation has plagued investors is that it could encourage the Fed to raise interest rates. This can be a headwind for stocks and means higher borrowing costs.
So far, the Fed hasn’t said when to start raising rates, but it is possible that discussions will begin shortly. 64% of millionaires say they expect interest rates to rise next year.
Economic background
Of course, some of these pressures are a normal part of the economy that stabilizes after a shock like a coronavirus pandemic.
Treasury Secretary Janet Yellen argues that rising prices are related to pandemics, such as supply chain disruptions and spikes in spending due to economic resumption. She said in a Monday interview with Bloomberg News that further government spending would be good, even if it caused inflation and rising interest rates.
“If interest rates are in a slightly higher environment, it will actually be a plus for the social and Fed perspectives,” she said.
Investors seem to agree that the economy and stock markets are on a growth track as a whole. Sixty-five percent of those surveyed said the economy would be stronger at the end of 2021 than in the previous year, and 77% believe the S & P 500 Index will rise by more than 5% to end the year.
This article originally appeared on Texas News Today.
