Is the US heading for higher inflation? Bond markets think so: the five-year breakeven inflation rate (the gap between conventional and inflation-proofed bond yields) has risen to a 10-year high, albeit of only 2.3 percentage points. And some of the grandees of the economics profession agree. Former Treasury Secretary Larry Summers has warned that President Biden’s plan for a $1.9 trillion fiscal stimulus could cause “inflationary pressures of a kind we have not seen in a generation”, a warning echoed by Olivier Blanchard of the Peterson Institute for International Economics.
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