The Fed and our politicians are playing with fire

Beware the monetary and fiscal misunderstandings that proliferate these days. 

There are two reasons to expect higher inflation now and in the future, and monetary "stimulus" is not one of them. There is no reason to expect that all the fiscal "stimulus" spending being contemplated in Washington will do anything good for the economy. The government cannot possibly spend money more efficiently and productively than the private sector. Raising taxes on the most productive members of society cannot possibly make the less productive members better off. 

 
Monetary policy can be "stimulative" only to the extent that it is neutral—i.e., neither too lose nor too tight. The Fed can't create growth and prosperity by printing more money, but it can hobble growth by being too tight or too lose; bad monetary policy introduces distortions to the economy that only work to slow growth. To the extent monetary policy is predictable and focused on preserving the value of the dollar it can be a factor which promotes growth by instilling confidence in the future and thus encouraging investment. But artificially low interest rates (which many claim we have today) do not necessarily make the economy stronger. On the contrary, keeping rates artificially low encourages borrowing and spending and discourages investment. Investment is the key to growth, not spending or demand—this is the central insight of supply-side economics.

Long-time readers will know that I have for years argued that Quantitative Easing was not stimulative. Instead, I saw it as a response by the Fed to the economy's demand for additional cash and cash equivalents. That demand, in turn, was created by the extraordinary bouts of uncertainty that have buffeted the economy since the Great Recession of 2008-09. By engaging in QE, the Fed was simply responding to an increase in money demand by transmogrifying notes and bonds into bank reserves (which pay a floating rate of interest and are default-free, just like T-bills). I have pointed out that the huge increases in the M2 supply that we saw in the late 2000s and early 2010s were not inflationary because the Fed was essentially converting notes and bonds into cash equivalents, which in turn was necessary to avoid a shortage of money. When the Fed adds money to match an increase in money demand, it is not inflationary; inflation only happens when the supply of money exceeds the demand for it.

I am now arguing that we are in the early stages of a monetary policy mistake that the Fed is committing. Last year the Fed boosted M2 by over $4 trillion in response to the unprecedented, catastrophic and extremely costly shutdown of the US economy. That was fine then, but it's not fine now. The economy is rebounding, confidence is returning, fears have eased, and the demand for money is consequently no longer increasing and in fact is decreasing. But the Fed is not reversing its QE in response, and so unwanted money  is accumulating. That shows up in dollar weakness, rising commodity prices, rising housing prices, and rising inflation expectations. Lots of unwanted money is likely helping stock prices to rise as well. 

If monetary policy is too easy or too tight, that affects the current and future value of the dollar, and the future thus becomes less certain. Uncertainty is the enemy of investment, and investment is the source of growth and prosperity. An uncertain future inhibits growth by encouraging investors to choose safety over risky ventures which promise to enhance productivity and living standards. As my mentor John Rutledge used to say, inflation is like a thick fog that settles on the highway, forcing everyone to slow down. Deflation is just as bad. A strong and stable dollar is nirvana. Huge increases in the money supply coupled with massive deficit-fueled government spending is most definitely not nirvana. It's time to get very worried that policymakers are going to be too slow to respond to the huge improvement in the economic outlook.

In the charts that follow I first cover the state of fiscal policy, which has deteriorated like never before. Spending is essentially out of control and off the charts. The Fed used the avalanche of new Treasury debt (about $4 trillion in just the past year) as an excuse to massively grow its balance sheet. Reckless spending and easy money are a very bad combination that will feed future inflation and slow the economy—unless they show clear signs of reversing soon.

At the onset of the Covid crisis, it all made sense. Fear skyrocketed and the demand for cash exploded. Everyone wanted to hold more cash (currency, checking accounts, demand and savings deposits) in order to protect against the unknown consequences of shutting down the global economy overnight. Those who didn't lose their jobs were unable—and likely unwilling—to spend all the money they were making. The Fed had no choice but to balloon its balance sheet in order to supply more cash and cash equivalents, and the federal government had no choice but to replace the incomes that were lost by an army of unemployed due to the arbitrary and sudden shutdown of the economy.

The Covid-19 pandemic is essentially over, at least in the US, since we have by now effectively achieved herd immunity via vaccines and antibodies. With the economy rapidly rebounding and confidence returning by leaps and bounds, the Fed is failing to reverse its money creation efforts, and unwanted money is thus flowing into other and better stores of value. Indeed, the Fed keeps insisting that it won't need to reverse course for a very long time! (Although the April FOMC minutes—released today—did acknowledge that eventually they will have to do so.)

Compounding these problems, politicians—looking to assuage their guilt over unnecessary shutdowns and quite possibly with an eye on future elections—voted for a significant boost in unemployment benefits. So much so that many millions of workers have realized they are better off staying at home rather than returning to work. But it's important to remember that supply bottlenecks and temporary labor shortages are not what create inflation: only Fed mistakes do. And it's also the case that this issue—excessive unemployment benefits—is already fading, since the extra benefits are set to expire by September and meanwhile, a growing number of states have decided to cancel those benefits.

What should be obvious to investors is that there is a significant cost to holding cash. Holding cash or most cash equivalents these days—and probably for the next two years—is almost certainly going to result in the loss of 3% or more in terms of purchasing power per year, because cash pays zero interest. And there is a lot of extra cash out there that is wasting away in bank savings and deposits—over $4 trillion, according to the M2 measure of the money supply.

So there is a compelling reason these days to avoid cash if at all possible. And, given the extremely low level of interest rates and spreads, investors should also avoid most fixed income instruments as well, because interest rates inevitably will rise and bond prices will decline significantly even if future inflation is only 2-3% per year.

For better or worse, and it's no surprise, the market has already begun to reprice along these lines. Inflation is fully expected to average almost 3% per year (2.7% is the market's current expectation) for the next 5 years, according to the TIPS market. Housing prices have risen dramatically all over the country. Used car prices have exploded. Commodity prices are soaring. The dollar is hovering around its weakest level in the past 5 years. All these indicators are consistent with there being a surplus of dollars in the world. Simply put, the value of the dollar is declining, and rising inflation is the natural counterpart to a weakening currency.

As for housing, affordability is the key factor driving housing prices, and this is unlikely to deteriorate any time soon. If mortgage interest rates remain low, prices will continue to climb until they become unbearable. But meanwhile, incomes will be growing as well, so current conditions could continue for a few more years. But at some point, higher rates could easily pop the inflating housing bubble.

What to do? No easy solutions present themselves. It’s not obvious how all this will play out; there are too many variables involved to make confident forecasts. Beyond, that is, predicting that lots of purchasing power and bond market valuations will be eroded with the passage of time. Big debtors, especially the US government, will benefit. Creditors in general will suffer, as will those in the private sector that have behaved responsibly by avoiding risky investments and holding onto “safe” cash. These processes are well underway. Very unfortunately, this all adds up to a significant headwind to future growth. Things may look fairly rosy right now, but over the long haul there could be significant problems. This realization may well explain why real interest rates on Treasuries are incredibly low.

Furthermore, it’s not unreasonable to think things could spin out of control. You can’t play fast and loose with the value of the world’s most popular currency without sowing negative seeds. The Fed may be forced to go back on its word and tighten well in advance of what they are promising today, and this could result in havoc for many markets. Meanwhile, the Fed is risking its credibility daily, and that is not good.

At the very least, a sooner-than-expected Fed tightening could lead to another round of panic such as we saw in late 2018. In retrospect, it is clear that the Fed back then had been tightening preemptively (unnecessarily worrying about higher inflation). That’s probably why they are so anxious to avoid tighening again—probably until it becomes painfully obvious that a tightening is necessary. And by that time, it’s likely they will have to tighten by more than they and the market would like. And that is exactly what has preceded and triggered nearly every recession in my lifetime. It's all so unfortunate.

The charts that follow give you a snapshot of the origins of the mess we find ourselves in today. Massive government spending and an overly-accommodative Fed have introduced profound risks to the economy and to financial markets.

Chart #1

Chart #1 shows the 12-month running total of federal government spending and revenues. Spending has literally exploded, while tax receipts have been growing quite slowly for the past 5-6 years. This is not a sustainable situation.

 

Chart #2

Chart #2 shows federal government spending and revenues as a percent of GDP. Spending stands out starkly as unprecedented, while revenues are only moderately below long-term averages.

Chart #3

Chart # 3 shows the 12-month rolling sum of monthly budget surpluses and deficits. The only other time deficits have been this large was during World War II. At least back then we had something to show for the spending: world peace and global growth. Today we have done little more than take trillions from the pockets of the more productive only to put it into the pockets of the less productive. Income redistribution on a massive scale cannot possibly lead to a growing and productive economy.

Chart #4

Chart #4 shows federal debt held by the public, which you can find here. Please note that the best measure of the debt outstanding is "Public Debt," i.e., debt held by the public. This does not include intragovernmental debt. If it did, that would be double-counting. 

Chart #5

Chart #5 shows total federal debt as a percent of GDP. It's huge in nominal terms, and almost as big relative to GDP as it was during WWII. In the aftermath of WWII debt shrunk rapidly relative to GDP, mainly because economic growth was spectacular. Although growth in recent quarters has been exceptionally strong, this is unlikely to be the case for the rest of this year and next. Why? Because last year's huge increase in debt was not put to productive use, as it was during WWII. 

Chart #6

Chart #6 shows the true burden of federal debt, which is defined as debt service costs relative to GDP. Although the debt is huge in nominal terms, interest rates are historically very low, with the result that servicing the debt only requires a modest 2.5% of GDP per year. This is very likely to increase in coming years as interest rates rise, even if annual budget deficits decline, but the increase is going to be slow (i.e., it doesn't present an imminent or dangerous risk for the next few years—we have time to get things fixed).

 

The following charts have important information about the money supply and inflation.

Chart #7

Chart #7 compares the nominal growth of GDP and M2 over the past 60 years. There is enough money in the wild today to support an enormous increase in nominal GDP. If people decide they are holding more money than they feel comfortable with, the current M2 money supply could quickly translate into a huge increase in nominal prices. In other words, the Fed has already supplied the fuel for a whole lot of inflation if the market's demand for money declines.

Chart #8

Chart #8 shows my preferred measure of money demand, which is M2 as a percent of GDP. This is akin to measuring how much of the average person's annual income he or she wants to hold in the form of cash and cash equivalents. As should be obvious, money demand has skyrocketed in recent years, and it's never ever been as high as it is today. The Fed last year purchased trillions of dollars' worth of newly-issued federal debt. The vast majority of the increase in M2 came in the form of bank savings deposits. Banks effectively invested strong savings inflows into bank reserves, which are functionally equivalent to T-bills. As a result, banks have a supply of bank reserves that is orders of magnitude more than would normally be required to collateralize their deposits. Should banks find more attractive lending opportunities in the private sector, the Fed's current provision of bank reserves would be sufficient to facilitate a further enormous increase in the M2 money supply ($1 of reserves is typically required for every $10 of deposits).

Chart #9

The Fed would like us to believe that the big (and surprisingly large) increase in consumer price inflation over the past year is just a temporary phenomenon. While it's true that the rise in prices in March and April of last year was depressed by the Covid shutdown, that's not necessarily the reason for the outsized jump in prices in the past two months. Chart #9 tries to illustrate this, by comparing the CPI index to its long-term 2% per annum trend, using a semi-log scale. If the jump in recent inflation were just payback for the slump a year ago, the current level of the CPI index would not be above it's long-term trend. But it is.  

Chart #10

I think it's fair to say the current rate of inflation is best measured using the seasonally adjusted trend of the past six months, which you can see in Chart #10. Overall inflation is up at a 5% annualized rate over  the past six months, while ex-energy inflation is up at a 3.1% annualized rate. A casual observer might say that we're already living in a 4% inflation world, which is double what we've seen in the past two decades.

Chart #11

National average home prices are up well over 10% in the past year, and rising. In inflation-adjusted terms, home prices today are as high as they were at the peak of the housing market bubble in 2005. But back then fixed rate mortgages were going for 5% or so, whereas today they are only 3% or so, as you can see in Chart #11.

Chart #12

Despite recent price increases, very low interest rates and abundant supplies of cash have conspired to make housing very affordable, as you can see in Chart #12. In fact, house prices today are much more affordable for the average family than they were in 2005.

Chart #13

Chart #13 shows why house prices are likely to continue to rise. The supply of unsold homes on the market today is just about as low as it has ever been. It's a huge seller's market, with lots more willing buyers than sellers. Prices could continue to rise even if mortgage rates increase by another percentage point or so.

Chart #14

Chart #14 compares the level of the dollar (inverted) to an index of the prices of industrial metals. The dollar is at its weakest level in the past 5 years, and a weak dollar can help explain why commodity prices are up (i.e., there is a fairly reliable correlation between dollar weakness and commodity price strength, and vice versa). But the recent gains in commodity prices look pretty impressive nonetheless. There must be a lot of demand for physical stuff, and that is likely fueled by the perception that with lots of money earning zero interest, it's better to be buying physical assets (which tend to rise with inflation) than it is to be buying financial assets such as bonds. Cash is trash.

Chart #15

Chart #15 shows there has been a rather impressive rise in consumer confidence since last summer. The US and Israel have basically won the fight against Covid, thanks to vaccines and acquired immunity. Other nations are working hard to catch up. The economy is throwing off its mask and people are getting back to work, anxious to live a normal life again. Who needs a huge stockpile of cash when the future looks so much brighter now than it did just six months ago?

Chart #16

Chart #16 shows the level of traffic passing through US airports since the Covid crisis began 14 months ago. The current level of traffic is still about 35% below the levels of two years ago (when it was about 2.5 million per day), but at this rate it won't take much longer to be completely normal. Things are improving rather rapidly these days. 

How long will it take the Fed to realize all this? How long will it take our politicians to realize that massive fiscal stimulus is not only no longer needed, but actually problematic and quite possibly dangerous?

Too much monetary and fiscal "stimulus" is quickly becoming a toxic brew and cause for great concern.

Updated outlook and some interesting charts

It's fairly clear to all that the near-term outlook is rosy. Vaccinations are becoming ubiquitous, and although daily new cases have ticked up a bit here and there (with the notable exception of Michigan), the severity of cases and hospitalizations is declining; most of the old and most vulnerable folks have either left us or are by now largely immune, so most of the new infections are occurring amidst the young and healthy. In any event, "herd immunity" is likely only months away at the current pace of vaccinations. Jobs are growing at a healthy clip and business investment is surging—the economy has recovered most if not all of the ground lost over the past year. Optimism is on the rise, but animal spirits are somewhat restrained by still-pervasive risk aversion. None of this is likely to reverse in the next several months, so the economy will continue to benefit from a widespread, natural healing process.

Looking further into the future, however, there are dark clouds on the horizon. On the monetary front, the Fed has supplied more liquidity to the system than ever before—and by orders of magnitude—but the inflationary potential of this has been kept in check by a still-robust demand for liquidity and safety. By promising to remain super-accommodative for at least a year or so, the Fed runs the real risk of allowing inflation and inflation expectations to run wild. Who wants to hold all that cash, when cash returns are zero in nominal terms and -2% in real terms? Who doesn't want to borrow at near-zero or negative real interest rates, when just about all commodity, real estate, and equity prices are rising? Absent a blow to confidence, the demand for money is sure to decline, and that in turn could fuel a substantial rise in the general price level (aka inflation) as economic actors attempt to unload unwanted cash—unless the Fed reverses course in a timely manner. 

Perhaps the darkest of clouds is the Biden Administration's urge to expand government spending (on just about everything except a relative handful of actual infrastructure projects) while borrowing trillions in the process, reversing the de-regulation accomplishments and jacking up marginal tax rates on the rich. Common sense tells us that increased government spending, borrowing, regulatory and tax burdens, subsidies, and income redistribution cannot possibly strengthen the economy, and can only weaken it. Today we enjoy a long-awaited healing and reopening process, but by next year we could be slowly suffocating under the burden of Big Government.

It's hard to imagine a worse scenario than inflationary monetary policy coupled with anti-growth fiscal policies, but that's the risk that lies menacing on the horizon. 

I am surely not the only one to worry about such things. The bond market is so dominated by risk aversion that short-term Treasury yields are still extremely low, and risk-free real yields are frankly negative. Bond investors are willing to pay exorbitant prices for anything resembling security. The equity market is far less frothy, since valuations do not appear terribly out of line with interest rates and the global economy (see Chart #9 below). 

Chart #1

With yesterday's release of the March CPI stats, no one was surprised to see year-over-year inflation rise by over 2.6% (as compared to the weak price action of March '20). But as Chart #1 shows, most of the inflation "noise" comes from energy prices, which are by far the most volatile component of the CPI index. Subtracting energy prices, the CPI rose a little over 1.9% in the past year (red line).

Chart #2

Chart #2 shows the ex-energy CPI index plotted on a log scale y-axis. Here we see that the long-term trend of ex-energy prices has been a relatively steady 2% per year over the past two decades. We have been living in a 2% consumer price inflation world for many years, and nothing so far has changed. 

Chart #3

Chart #3 compares the price of gold to the price of 5-year TIPS (Treasury Inflation-Protected bonds), using the inverse of their real yield as a proxy for their prices. Both of these assets promise protection not only from inflation but also from geopolitical risk and general currency debasement. In short, they are classic safe-haven assets. That both are trading very near their all-time highs is a good sign that the world is still quite risk-averse. 

Chart #4

Chart #4 shows 10-yr Treasury yields, which have surged over 100 bps from last year's all-time lows. Yet yields today are only marginally higher than they were prior to the onset of the Covid crisis. Back in February of last year, a casual observer would have remarked that Treasury yields were exceptionally—and historically—very low. Yes, the outlook has brightened, but it still remains unusually dark. That investors are still eager to buy Treasuries at today's prices can only be interpreted to mean that the demand for Treasuries (arguably the safest place in the world to park long-term funds) is still very, very strong, which in turn strongly suggests that risk aversion is still very much alive and well. So strong that the nominal yield on Treasuries is fully expected to be less than the rate of inflation for the foreseeable future. 

Chart #5

Chart #5 shows the volume of passenger traffic in US airports. On a seven-day average basis, 1.4 million people took to the air as of yesterday. That's a huge improvement (about double) from just two months ago, but it is still more than one-third less than the rates we were seeing in 2019 and early 2020. There is still plenty of upside here.

Chart #6

As Chart #6 shows, equity prices have moved ever higher of late thanks in large part to a decline in the Vix "fear" index. Yet the level of the Vix today (17) is still substantially higher that the average (about 12) that is typical of periods of relative calm. Again we see that risk aversion is still alive and well, though obviously much less so than it was at this time last year. 

Chart #7

Chart #7 compares the market capitalization of Apple and Microsoft, the two leading tech giants. Both companies are worth over $2 trillion, an amount previously thought unimaginably high. If Apple were the only company to sport a two-trillion handle, we might be tempted to call it a bubble. But both companies have experienced similar gains over the years, and they were both well-positioned to profit from the new work-at-home reality which Covid fears sparked. 

Chart #8

Just for fun, Chart #8 compares the market caps of Walmart—the former world's retail giant—and Amazon, the new world-class retail giant. At $1.7 trillion, Amazon's market cap is more than four times larger than Walmart's and only a bit below that of Apple and Microsoft's. Arguably, both companies radically changed the retail world, only in very different ways and at different times.

Taken together, the market cap of these three giants adds up to about 14% of the current market cap of all US equities, according to Bloomberg. And to think they barely existed 30 years ago!  

Chart #9

Much has been made of late of the Buffett Indicator, which says that the market cap of US stocks exceeds US GDP by such a huge and unprecedented margin as to be a clear sign that the market is in a "bubble" that is set to burst. Chart #9 is my counter to that argument. I don't think it makes sense to compare the market cap of US corporate giants to just US GDP. After all, they have become huge players in the global marketplace, which is like saying their addressable market has expanded exponentially in recent decades. Globalization is a relatively new phenomenon, and it has meant that a US corporation can derive a huge portion of its profits from overseas markets which previously barely existed (e.g., China, India). Comparing after-tax corporate profits (a rough proxy for market cap) to global GDP shows no sign of an extreme. Profits have increased dramatically relative to US GDP (they averaged about 6% of GDP through 2000, but they have averaged almost 10% of GDP for the past decade), but not when measured against the surge in global GDP.

The long-term outlook is cloudy, but the near-term outlook is still favorable for investors. It's not an entirely comfortable situation, unfortunately. But the good news for now is that the risks out there are not going unnoticed, and that's a healthy sign. Will Congress really end up passing economy-crippling legislation?

UPDATE: This article by Gregory van Kipnis of AIER adds a lot of meat to my brief discussion regarding Chart #9. The author uses a rough estimate to make his point: "... half the growth in the Buffett Indicator comes from the increased importance of foreign earnings to US corporations, and another half of the growth comes from the increased amount of profits emanating from publicly traded companies."

Booming prices

The Fed continues to expand its balance sheet, the federal government continues to send out Covid relief checks, and the Fed continues to effectively monetize most if not all of this monetary "stimulus." Although this "stimulus" hasn't yet resulted in a significant rise in the general price level, we do see increasing—and potentially troubling—signs of booming prices in certain areas of the economy. I've been arguing for some time now that the Fed's profligate monetary expansion has not been inflationary because it has simply accommodated a similar, robust increase in the demand for money. But the demand for money of late is surely declining (while the supply is not) thanks to 1) rapidly spreading vaccinations and a significant increase in the US population's natural immunity, 2) increasing consumer confidence, 3) the ongoing relaxation of lockdowns and mask mandates, and 4) impressive signs of economic recovery.

In my view, we are already seeing early signs of what will eventually prove to be a meaningful increase in inflation, and this process is likely to play out over the next few years. Inflation seems sure to rise, but we do not yet know by how much.

Chart #1

As Chart #1 shows, the Fed has allowed the M2 money supply to increase at an unprecedented pace since February '20. M2 has surged by $4.2 trillion (27%) in the past 13 months, and has been rising at a roughly 15% annualized pace in recent months; that is far and above the 6.5% annualized rate of M2 growth in previous decades. The vast majority of the outsized increase in M2 can be found in bank savings and deposit accounts at the retail level. The public, in other words, has been hoarding money like never before, likely as a response to all the uncertainties raised by the Covid crisis. I calculate that M2 currently is about $2.3 trillion above its long-term growth trend. That's an extra 12% increase in the amount of money than would be held in "normal" times. If the public decides to reduce its cash holdings relative to income, this "extra" M2 could fuel a 12% increase in inflation over the next few years.

Chart #2

Chart #2 shows the Manheim Used Vehicle Value Index in both nominal and inflation-adjusted terms. Since February 2020, used cars have jumped 22% in price! In real terms, they are almost back to where they were during the boom times of the late 1990s. 

Chart #3

Used cars appear to be in very short supply (relative to demand), and new car sales these days are about as strong as they have ever been, as Chart #3 shows. No matter how you look at it, the demand for new and used cars is robust. Strong demand could be due at least in part to all those stimulus checks, coupled with very low borrowing costs and the public's pent-up demand to get out and about following a year of being shut in. 

Chart #4

Chart #5

Charts #4 and #5 show the prices paid component of the ISM manufacturing and service sector surveys. The vast majority of businesses are paying higher prices for stuff these days. That last time we saw such high levels—in the late 2000s—we also saw elevated levels of the CPI, which averaged 4% per year from mid-2005 to mid-2008. 

Chart #6

Chart #7

Housing has also been the beneficiary of unusually strong demand, as Chart #6 shows. In real terms the average home price in the US is now just about as high as it was at the peak of the 2006-2007 housing boom. Prices rose by about 11% last year and continue to move higher (it's not uncommon to see Zillow and Redfin reporting asking price increases these days, at least in local neighborhoods I follow). I expect to see this continue, fueled by exceptionally low mortgage rates and lots of cash in people's pockets. Plus, the Fed has vowed to not interfere with any of this until late next year. 

As Chart #7 shows, it takes about 18 months for big moves in housing prices (blue line) to show up in the housing component of the CPI (red line). As Milton Friedman taught us, the lag between monetary policy and inflation can be long and variable.

Chart #8

The elephant in the rising-price room is the US equity market. The S&P 500 is up over 20% since it's pre-Covid high in February '20. According to Bloomberg, the market value of all US equities has increased over that same period by about $10 trillion.

Chart #9

Non-energy commodity prices (red line, Chart #9) are up over 20% from their January '20 highs. A good portion of that rise can be attributed to a weakened dollar (blue line), but a weaker dollar is symptomatic of easy money and a precursor to inflation (as we saw in the 1970s). Note also that the dollar weakened in the 2005-2008 period and commodity prices also rose—and inflation increased meaningfully, as noted above.

Chart #10

The price of copper has jumped over 40% since the highs of January '20. This undoubtedly reflects booming construction activity around the world, but also can be attributed in part to easy money conditions in the US. 

Chart #11

Finally, as Chart #11 shows, one driver of higher prices is simply a decline in the market's level of uncertainty, as reflected in the declining Vix "fear" index. The uncertainty that prevailed throughout most of 2020 undoubtedly contributed to the public's hoarding of cash, and now this dynamic is unwinding. 

Unless and until the Fed reverses its Quantitative Easing efforts and/or raises short-term interest rates, declining fear, rising confidence, and strong economic growth are likely to fuel a palpable rise in inflation for the foreseeable future. 

Unfortunately, that in turn will give way—as has always been the case after periods of rising inflation—to tighter money, higher interest rates, and eventually (2023?) to sharply weaker economic growth.