Very interesting paper from Larry Summers and a couple other economists I'm not familiar with.
Basically it argues that current inflation is nearly as bad as the late 70s and 80s. And that inflation is not nearly as responsive to Fed policy as many optimists believe. The takeaway being that Fed policy will need to approach Volker Fed levels of restrictive, far in excess of the 3-3.5% rates that the Fed currently projects.
You've probably heard people say that if we measured inflation now the same way we did in before 1983, inflation would be more like 15% rather than 8.5%. That's true. Inflation now is about as bad as the early 80s. This paper attempts to create comparable metrics for various inflationary periods in US history. It also demonstrates that inflation is not as responsive to Fed rate hikes as some would believe, by showing how the pre-Volker CPI was artificially high and artificially came down more than it would if we measured it as we do today in response to Fed policy.
All suggesting that the Fed is still wildly behind the curve and much more restrictive policy will be required to tame inflation. Perhaps as restrictive as the Volker Fed, which sent the US into a severe recession. Strongly encourage everyone to give this a read. Worth noting that Summers has been correct so far in this inflation cycle and the optimists all have egg on their face.
As for the impact on stocks if Summers is correct – Bad, very bad.
https://www.nber.org/system/files/working_papers/w30116/w30116.pdf
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