This is what the post reads: “As the U.S. economy contracts, the Federal budget deficit will grow and the perceived appeal of U.S. financial assets will be lost. As a result, foreign capital will flee at precisely the time it is needed the most. This will put additional upward pressure on interest rates, further increasing mortgage rates, suppressing real estate prices and consumer spending. More importantly, it will also cause the dollar to fall”
It seems like he is implying that as foreign capital runs away from the US markets it will cause 1)higher rates 2)weak dollar. Sorry but I don’t believe both can happen at the same time right now. BTW, what will happen to housing prices when dollar falls to dear lows? Also, bearish housing sentiment and stagflation expectations are kind of contradictory as housing assets will beneft from falling dollar.
People looking backward at the 70s stagflation generalize too easily. If you let inflation go out of hand then you can have stagflation where you have to raise rates despite economy already reeling from high prices stripping consumers. So the key is not to let inflation run rampant and I believe as long as Fed REALLY prioritizes controlling inflation as top priority then we probably won’t hit stagflation. As I said before, there is more downside risk but there are no sure bets.
