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Inflation and higher interest rates aren’t going away, says veteran strategist Bill Blain.
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Blain, the director of Wind Shift Capital, thinks that global inflation is firmly entrenched and that interest rates cannot be lowered much further.
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Higher interest rates could crush speculative investments, sending stock prices down 12%, he said.
Households and businesses may be breathing a sigh of relief as borrowing costs fall, but they shouldn’t get comfortable because interest rates and inflation will remain high — and that reality could cause a big drop for stocks in the coming year, Wall said Street. said veteran Bill Blain.
Blain, a longtime strategist and principal at Wind Shift Capital Advisors, said he sees a tough 12 months for the stock market. He said the Fed isn’t ready to cut rates as low as markets think, and that borrowing costs could indeed rise from here. That could limit lending, slow dealmaking and send U.S. and global stocks down 7% to 12%, he told Business Insider in an interview.
“I think the crisis we are facing is what happens when interest rates start to rise, and governments are not in a position to continue to stimulate the economy in a rising interest rate environment because they lack the support of the markets have lost,” Blain said.
In the event of a credit crunch, he doubts the US will be able to hand out stimulus as it did during the pandemic, due to concerns about overall debt levels and the inflationary impact on the economy.
“The reality is that inflation will creep back into the global economy. Interest rates will have to rise,” he said.
Blain’s prediction may sound counterintuitive to investors who have priced in ambitious central bank rate cuts.
But the U.S. economy faces too much inflationary pressure over the medium term to justify aggressive policy easing, Blain said.
First, the federal debt has risen to a historic $35 trillion. Economists have identified rapid government borrowing as a factor that threatens to fuel inflation.
Meanwhile, supply chain problems continue Given the increasing geopolitical tensions, world trade appears to be on track fragmentedwhich can also support inflation.
Finally, former President Donald Trump’s threat of high tariffs would impose a tax on nearly all imported U.S. goods, which economists say would ultimately be passed on to consumers.
“I think inflation will be deeper, just like it was in the 1970s and early 1980s,” Blain said. “It’s going to be a very, very different economy and we just have to get used to it.”
