Who Loves Inflation? Wall Street Loves Inflation!

More

The stock market has a fever. And the only prescription is more inflation. That's the clear message from the below chart, courtesy of Reuters.

StocksInflation.png

Since the recovery began in mid-2009, the S&P 500 (orange) and expected inflation (blue) have tracked each other almost perfectly. Intuitively, that might seem obvious. As inflation goes up (or down), so too do stocks, right? Actually, not always.

Consider the 1970s stagflation. Prices spiraled out of control most of the decade, but stock prices didn't. And after Paul Volcker finally succeeded in whipping inflation in the early 1980s, stocks moved in the opposite direction: They soared.

It's all about whether there is too much or too little spending in the economy. When there's too much -- like in the 1970s -- inflation isn't good for stocks. But when there's too little, stocks will take any spending they can get. Even if that extra spending comes from inflation. As Scott Sumner and Paul Krugman have pointed out, the above chart is Exhibit A in the case that the U.S. economy is suffering from a shortage in demand, above all else.

Hopefully, somebody at the Fed is listening to the stock market.

Jump to comments
Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

Get Today's Top Stories in Your Inbox (preview)

Sad Desk Lunch: Is This How You Want to Die?

How to avoid working through lunch, and diseases related to social isolation.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Where Time Comes From

The clocks that coordinate your cellphone, GPS, and more

Video

Computer Vision Syndrome and You

Save your eyes. Take breaks.

Video

What Happens in 60 Seconds

Quantifying human activity around the world

Writers

Up
Down

More in Business

Just In