Economy Will Be 'Supercharged' After Pandemic But There’s One Big Risk, Moody's Says (It’s Not Inflation)

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TOPLINE

As early indicators point to a strong recovery that will create a “supercharged” economy once the coronavirus crisis slows down, Moody’s Analytics chief economist Mark Zandi says that the biggest risk to that recovery isn’t the runaway inflation that has many experts sounding alarm bells but a dangerous surge in asset values.

KEY FACTS

Rising vaccination rates and falling hospitalizations, plus the fact that herd immunity looks likely by the summer months, are just a few of the “increasingly compelling reasons” to be optimistic about recovery in the months ahead, Zandi wrote in a Monday research note.

In addition, federal stimulus spending is beginning to make its way to households that need assistance, households with excess personal savings and lots of pent-up demand from the pandemic are ready to spend, and business-to-business spending is on the rise too.

Some economists, lawmakers, and market experts are worried that the unprecedented federal stimulus and the surge in consumer spending that follows it will push prices to historic levels, devalue the dollar and destabilize the broader U.S. economy.

Zandi says these concerns about rampant, uncontrollable inflation are “much too premature,” especially since it will be years before the U.S. reaches pre-pandemic employment levels.

Rather, the bigger and more pressing threat to the recovery is ballooning asset prices, he says, pointing to recent surges in the equities market, housing market, bond market, commodities market, and even the cryptocurrency market. 

With valuations sky high, these markets could be vulnerable to major corrections and crashes that have the potential to reverberate through the entire economy.  

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