Some of these changes have already arrived, particularly at the low end of the income spectrum.

Since Covid-19 began, Amazon has hired nearly two million workers at $16 an hour.

The average supermarket worker is now earning over $15 an hour and, even so, many retail and hospitality employers are struggling to find workers. A recent survey of employees in these sectors found half of them view the recovery as an opportunity to get better jobs.

Many workers in information-based businesses have benefited during the pandemic, and some employers in these industries are upping the ante pre-emptively. BlackRock, the world’s largest asset manager, recently announced an 8% raise for all employees.

Where inflation settles down is anyone’s guess. Fuss expects prices to moderate from recent levels but still run at a 4% or 5% clip for the next several years.

Others, like DoubleLine’s CEO Jeffrey Gundlach, have discussed similar numbers in recent webcasts, though Gundlach declined to put a time line on his prediction. While that would not be a return to 1970s style inflation, it still represents a sea change from what markets and businesses have grown accustomed to.

The Fed has given a convincing performance on selling the “transitory” narrative, notes Permanent Portfolio CEO and CIO Michael Cuggino. But masterful salesmanship doesn’t always translate into actual outcomes.

If the paycheck component of inflation stays around longer than people anticipate, it will start to change the behavior of consumers, businesses and workers, Cuggino explains. “The longer the data is there, the more likely it is to get embedded into businesses’ psychology,” he says.

Perception Meets Reality
It’s when those expectations are contrasted against what the bond market is pricing that the chasm between perception and reality gets glaring. MFS Investment Management chief economist and portfolio manager Erik Weisman has more muted inflation expectations than Fuss, Gundlach and others. Still, he thinks pricing in the market for Treasurys and other bonds borders on the irrational.

“All 18 governors and presidents of the Fed thought inflation would be lower,” he says, though they expressed less certainty about its path. Even if sustained 4% inflation doesn’t materialize, Weisman thinks bond investors could get clocked if it runs at a 2.5% rate.