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Inflation Through the Lens of History

Inflation Through the Lens of History
Inflation Through the Lens of History
Headshot of Jamil Baz
Headshot of Lorenzo Pagani
Headshot of Greg Sharenow
Headshot of Jerry Tsai
 | {read_time} min read

EXECUTIVE SUMMARY

  • The Taylor rule suggests that further monetary tightening is necessary to address the current bout of inflation. In addition, low unemployment gives the Federal Reserve scope to hike rates further.
  • However, compared with other episodes of inflation since World War II, the sensitivity of the U.S. economy to higher interest rates is exceptionally high.
  • Thus, the Fed faces a dilemma: If it is unflinching in stanching inflation, all risk assets could experience a brutal sell-off; if, as we believe, the cost of controlling inflation is too high, then inflation could remain elevated for longer, which could bolster real assets.

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