This is not to argue that the super-easy monetary and fiscal policies of the pandemic should be maintained as the pandemic winds down. While easy policies were in order at the height of the emergency, keeping them in place as the economy moves to full recovery would only increase distortions in the economy and capital markets, reducing long-term economic growth and increasing the risk of financial shocks.
However, it does suggest that investors should keep a balanced view with regard to inflation. This means focusing more on the potential impact of higher interest rates on portfolios and looking more carefully at valuations.
For many investors, the real danger from inflation isn’t that their portfolios are badly positioned to handle runaway inflation—it is that capital markets are priced as if inflation was close to zero, which is not the case today and, despite a potential easing of pressures in the year ahead, will not be the case in the years to come.
David Kelly is chief global strategist at JPMorgan Funds.