Has a decade of ultra-loose monetary policy laid the foundations for inflation? from MGIM’s Andrew Hardy | Ten Year Retrospective

by | Aug 5, 2021

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Part of our series of articles celebrating IFA Magazine’s ten year anniversary, Andrew Hardy, Director of Investment Management at Momentum Global Investment Management, reflects on investment change over the past decade and with this insight, warns that inflation is the biggest risk to the market in future.

“For me the most dramatic and most significant change over the past ten years has been the widespread adoption of extraordinary monetary policy by major central banks around the world. From successive rounds of quantitative easing and liquidity injections to experiments with negative interest rates, options in the policy toolkit which were rarely if ever used before have become largely normalised. They’re no longer so extraordinary. Central bank balance sheets have ballooned; from $2.8tr to $8.0tr over the last decade in the case of the Federal Reserve, as the QE response to crises and low economic growth has become a policy mainstay. This has already had significant and far-reaching implications for markets and economies, directly and indirectly, but the longer-term consequences in years to come may prove to be even greater.

“We’re perhaps beginning to see this in rising inflation figures and future expectations. Over a decade of ultra-loose monetary policy has laid the foundations for a potential shift to a more inflationary regime, with the pandemic perhaps lighting the touchpaper by ushering in a new era of fiscal largesse. After several decades of low inflation, policymakers and investors have potentially become too complacent about the risks associated with higher inflation. Although there remains a wide range of potential outcomes in the coming years, we see a return of higher inflation as the biggest risk factor in markets; it would erode purchasing power, damage the real value of savings and wealth, and would have far-reaching implications for the construction of portfolios.”

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