After multiple decades of mostly low or falling inflation we may be entering a new financial era of generally higher inflation and interest rates. Because many of us are not used to this dynamic (my career for example began in 2000) I have been exploring various thoughts on what this might mean for investment strategy, spending, retirement, and the approach to every day financial life. Here are some musings from other writers on this topic I have been reading lately:
How Will We Remember The Age of Cheap Money?
Sarah O’Connor, Financial Times
Sarah O’Connor writes about the various effects and economic distortions resulting from the past decade of low interest rates. Although income growth was slow, low interest rates and long payoff terms allowed many people to increase their lifestyle with luxury cars, and more expensive houses. Low cost of capital also drove significant capital to start up companies offering convenience services such as low cost delivery and rides. These services could operate at a loss, backstopped by venture capital funds. Cheap delivery might be a thing of the past.
Why Today’s Inflation is Not a Repeat of the 1970s
Ben Carlson, A Wealth of Common Sense
Ben Carlson makes a case that while there are some similarities, he does not think we are about to enter another 1970s style inflationary period. There were many policy mistakes made in the 1970s, such as keeping interest rates too low, and implementing price controls. It took over a decade to get the policy right and this time the Federal Reserve board and politicians have a chance to learn from the past and not make the same mistakes.
How To Enjoy Your Life After The Fed Ruins The World
Financial Samurai
Sam from Financial Samurai gives his thoughts on some practical lifestyle changes to consider if the Fed keeps interest rates too high and it leads to a recession. He advocates focusing on important relationships and considering travel abroad while the US dollar is high. If we go into recession, there might even be a window where prices for hotels and flights go down while the dollar remains strong.
