Is the Fed's plan to let inflation run hot a recipe for dollar debasement?
In the March 29, 2021 issue of “The Global Investment Committee (GIC) Weekly" Morgan Stanley’s Lisa Shalett, Chief Investment Officer Head of the Global Investment Office Morgan Stanley Wealth Management, believes “the Fed’s plan to let inflation run hot is a recipe for dollar debasement, and could tee up a boom/bust cycle in which real rates never fully normalize.” She expects the pause in the dollar’s bear market to end as investors focus their attention on “ballooning of the twin deficits; growing government debt dynamics; a Fed that is behind the curve on rate hikes; government priorities that shift toward regulation and taxes; and emerging competition for foreign currency reserves.”
As mentioned in our 1/20/21 blog titled “What recent shorts against the dollar could mean for gold,” when the value of the dollar increases (decreases) relative to other currencies around the world, the price of gold tends to fall (rise) in the U.S. dollar. With dollar debasement expected in the near future, investing in gold now could prove to be a sound investment strategy.
Shalett, L (2021 March 29) “A Pause in the Dollar Bear Market”. Retrieved from: https://www.morganstanley.com/ideas/dollar-bear-market
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