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Expand chart
Data: Federal Reserve Bank of St. Louis; Chart: Axios Visuals

With nearly $3 trillion in lending from the Fed this year, and Congress approving $900 billion in debt-financed spending on top of the $3.1 trillion budget deficit in fiscal year 2020, inflation hawks are sounding the alarm.

Why it matters: “Inflation staying low and well-behaved is the foundation on which everything in markets is currently priced,” Karen Ward, chief market strategist for Europe at JPMorgan Asset Management, told FT.

  • “Investors’ assumption is that central banks will be able to stay accommodative well into the economic recovery. If inflation picks up in a way that’s not expected, that would challenge the market’s entire view.”

The big picture: Most major asset managers are predicting a significant return to growth for the U.S. economy next year, but some worry the release of pent-up demand - as mass vaccinations end the coronavirus pandemic's depressing hold on prices - will lead to a return of inflation.

What's happening: Indicators already have been perking up, with inflation in "pandemic products" spiking (world food prices rose at the fastest rate in six years last month), even as official metrics like consumer price indexes have shown no reason for worry.

  • Precious metals' prices are rising again, with gold touching its highest level since early November late last week and silver on a six-session winning streak, hitting its highest since Sept. 22 on Monday.
  • Five-, 10- and 30-year breakeven inflation rates are all rising near 2% and the 10-year rate, at 1.95%, is just 2 basis points from its highest point since November 2018.
  • U.S. money supply, M2, continues to rise at breakneck speed.

The intrigue: "How concerned should we be?" Bank of America's global economics team wrote in a note to clients. "With low inflation woven into the fabric of capital markets, significantly higher inflation today could be more even more painful than in the past."

Yes, but: BofA analysts echoed the sentiments of most Wall Street strategists and fund managers saying they "expect many inflation head fakes before the real deal arrives."

One level deeper: "The trajectory for inflation will be a lively debate, with the vaccine-driven reopening of the economy likely to trigger a jump in prices for items at the epicenter of the pandemic," Deutsche Bank chief U.S. economist Matthew Luzzetti said in a note.

  • "However, we anticipate that any price pressures triggered by these events will prove transitory and that ultimately the disinflationary pressures from shelter and health care will keep inflation subdued."

Yes, but, but: The Fed has pledged not to raise U.S. interest rates until inflation has run above its 2% target for some time. That risks letting rising prices get out of hand, economists warn.

Go deeper

Dion Rabouin, author of Markets
Jan 28, 2021 - Economy & Business

U.S. indexes see worst day since October amid short squeeze chaos

Photo: Angela Weiss/AFP via Getty Images

Equity prices tumbled Wednesday, with U.S. indexes booking their worst day since October, but traditional hedging assets like Treasury bonds, the Japanese yen and gold saw minimal gains or losses, continuing a trend that has been in place for more than a year.

By the numbers: The S&P, Dow and Nasdaq all fell by more than 2%, but the benchmark 10-year U.S. Treasury yield declined by just 1 basis point from its closing level on Tuesday.

Jan 28, 2021 - Health

Drug prices in the U.S. are much higher than in other countries

Illustration: Sarah Grillo/Axios

Prescription drug prices in the U.S. are more than 256% higher than other 32 other countries, with the gap driven by brand-name drugs, a new report by nonpartisan RAND Corporation shows.

The big picture: Drug spending in the U.S. jumped by 76% between 2000 and 2017, and the costs are expected to only increase over the next decade, per the report.

Dion Rabouin, author of Markets
Jan 28, 2021 - Economy & Business

How GameStop exposed the market

Illustration: Eniola Odetunde/Axios

Retail traders have found a cheat code for the stock market, and barring some major action from regulatory authorities or a massive turn in their favored companies, they're going to keep using it to score "tendies" and turn Wall Street on its head.

What's happening: The share prices of companies like GameStop are rocketing higher, based largely on the social media organizing of a 3-million strong group of Redditors who are eagerly piling into companies that big hedge funds are short selling, or betting will fall in price.