BlackRock Gives the Death Rites to the Great Moderation

That lovely time of low inflation and bull markets isn’t going to recur, it says.

Amid resurgent inflation and a bear market, not to mention a persistent pandemic, nostalgia runs high for the lost period known as the Great Moderation. There still are optimists around who think it will be back once 1) inflation abates, 2) the market recovers or 3) fill in the blank.

Forget it, says BlackRock, in its latest global outlook. The world’s largest asset manager, it arguably has a good perch to know what’s happening. “This is no more,” the report says

How come? Labor shortages, for one. “Many people are hesitant to go back to work or are taking longer to find a job in a new sector,” the BlackRock analysis states. That in turn has led to production problems. The Ukraine war has made matters worse. Add in higher interest rates, which will make handling the enormous government and corporate debts more difficult.

Next, BlackRock says, factor in the current high degree of politicization, which leads policy to be determined by current passions, not cool-headed thinking and economics. The report charges that “central banks are likely to veer between favoring growth over inflation, and vice versa. This will result in persistently higher inflation and shorter economic cycles.”

Then comes the coup de grace. “Bottom line: We don’t see a repeat of the Great Moderation’s sustained stock-bond bull markets.” BlackRock says the reason we got the Great Moderation sas simply luck.