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The Great Reflation Debate

Is inflation dead, or re-awakening? Investment implications…

Following the US Presidential Election, financial markets predicted boosts in growth and inflation. But is this so-called "reflation" trend likely to persist? The papers below reflect contrasting views.

Is inflation dead, or re-awakening? And if we are moving into a reflationary era, just how much impact will this have on interest rates? How should investors therefore adjust their asset allocation?

Savvy Investor

Mid year 2017: The reflation debate (UBS Asset Management, June 2017)
Senior members of UBS Asset Management investment teams across both traditional and alternative asset classes wade into the debate. They identify the risks and opportunities in their respective investment universes.

Global Market Outlook Mid-Year 2017: Upturn Goes Global (SSGA, July 2017)
Mixed signals from the U.S. economy have generated much debate over whether the global reflation theme will persist. However, SSGA's Chief Investment Officer, Rick Lacaille, believes that the environment for risk assets remains constructive. This 28 page chart-book neatly illustrates the key issues facing investors as we move into the second half of the year.

Under Pressure: Is Inflation Back? (GSAM, June 2017)
This quarterly report by Goldman Sachs Asset Management examines recent inflation trends in developed economies. Inflationary forces are gathering in the US, while in Europe and Japan the pressure is on policymakers, as prices have barely responded to heavy stimulus.

How The Internet Economy Killed Inflation (June, 2017)
This paper from New Constructs argues that the most significant cause of low inflation is the Internet Economy.

Reflation Catalysts: Unlocking Value in Real Assets (Cohen & Steers, Mar 2017)
This 11-page paper by Cohen & Steers argues that the market environment is turning strongly in favor of real assets.

Investing in the Era of Reflation (Pioneer Investments, March 2017)
How should investors position themselves for a reflationary environment?

The Macro Report: Calm before the storm (Putnam Investments, June 2017)
The authors discuss some of the dynamics behind falling inflation, including corporations' failure to restore margins by changing higher prices.

Downgrading Inflation (Northern Trust, June 2017)
Core levels of consumer price inflation in the United States, Europe and Japan have all been very stable over the last year, leading to a reduced expectation for inflation over the next 10 years. We expect this to feed into a slow but steady approach from the Federal Reserve as it edges up short-term interest rates and look s to slowly shrink its balance sheet.

Is the Trump reflation trade stalling? (Eaton Vance, May 2017)
Eaton Vance asks whether the "Trump Reflation Trade" has run out of steam.

The reversal of U.S. QE: Everything you need to know (UBS AM, June 2017)
With Quantitative Easing such a key influence on markets, we analyze why the Fed has decided the time is now right, how the Fed will reduce its holdings and the likely reactions of investors across asset classes. 

From Stall Speed to Reflation: A Turning Point for Investing (PineBridge, 2017)
Markets have finally entered a new regime of improving confidence, growth, leverage, and prices. For investors, success ahead will require a more active approach.

New Evidence for a Lower New Normal in Interest Rates (FRBSF, June 2017)
The authors from the Federal Reserve Bank of San Francisco argue that a decline in the equilibrium rate of interest has contributed to a 2% drop in yields over the past two decades.

U.S. Interest Rates Chartbook (BBVA, June 2017)
The monthly BBVA chartbook provides an excellent visual illustration of the key factors influencing US monetary policy.

The evolution of inflation expectations in Japan (BIS, June 2017)
This academic paper from the BIS models inflation forecasts, comparing the results to a similar study of US and Canadian forecasters.

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