When interest rates were stuck at near-zero levels for most of the decade before 2022, bond portfolio managers like Matt Eagan, head of full discretion at Loomis Sayles, wondered if he’d have a job if that interest rate environment were to persist into the current decade. Fortunately for those like him managing assets in the bond market, the world has changed dramatically in the past three years.

But today’s world is very different from the “secular stagnation” climate that dominated the previous decade and it poses a new set of risks, he said today at a Loomis Sayles press luncheon. For people who entered the asset management business after 2000 and never saw inflation numbers that mattered, the investing landscape is a very different place.

If one goes back 110 years ago when the Bureau of Labor Statistics was created in 1913, the U.S. has experienced periodic bouts of inflation before, each time with a different driver. The transition from a war to a peacetime economy sparked inflation in the 1940s. More dramatically, the wage-price spiral in the late 1960s got lit on fire by the energy crisis and other supply shocks in the 1970s.

The current round of inflation was triggered by the pandemic, followed by huge fiscal stimulus, according to Pramila Argrawal, portfolio manager and director of custom income strategies at the firm. In the last 15 months, inflation has come down to the 3% area but service sector inflation has remained stockier than goods have, she said. When set against a backdrop of deglobalization and reshoring, many are questioning whether the Fed can reach its target of 2% inflation.

Moreover, the geopolitical world is changing rapidly and most, but not all of the changes, are for the worse. During the Cold War years from 1950 to 1989, Germany and Russia had a stable working relationship. Germany, in particular, could rely on cheap Russian gas and the American defense umbrella to become the world’s largest exporter.

Today, Germany, the European Union's largest economy, looks like “the bigger loser” in the new post-pandemic world that is taking shape, according to Dave Rolley, portfolio manager of co-head of global fixed-income at Loomis Sayles. For years, when presidents Bush, Obama and Trump urged them to increase defense spending, they could pay lip service. After the Russian invasion of Ukraine, Germany has no choice but to divert domestic resources to the military.

Then there is the issue of global trade and climate change. Germany just happens to be the world’s leader of gasoline-powered automobiles at a time when China’s BYD is introducing extremely attractively priced electric cars.

There is an expectation than many Western countries may place high tariffs or outright restrictions on domestic sales of Chinese EVs. But there is little doubt that China would retaliate, hurting exports of Audi’s, BMW’s and other German cars, along with other expensive goods, to China.