Lacy Hunt: It's Not Inflation But DEFLATION That's The Real Threat To Our Economy

If things indeed play out this way, it will catch a lot of investors by surprise

Recession fears seem to have faded from the headlines, as the "no landing" scenario seems to have won out -- on Wall Street at least.

Attention is much more focused on a possible boost to economic growth from the policies of the new Trump administration, as well as concern that inflation could prove stickier and more stubborn to tame than the Fed hopes, resulting in higher for longer bond yields.

So, were the deflationists wrong?

For a true expert's view, we have the great fortune to sit down today with one of the greatest living economists, Dr. Lacy Hunt, former Senior Economist to the Federal Reserve Bank of Dallas, as well as several of the world's largest global banks. He now serves as Executive Vice President and Chief Economist of Hoisington Investment Management Company.

Lacy still very much sees deflation as the stronger trend, which he expects will win out over the current ‘sticky inflation’ concerns as we head further into 2025 — surprising Wall Street in the process.

To understand why, click here or on the video below:

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Adam’s Notes: Lacy Hunt (recorded 1.28.25)

EXECUTIVE SUMMARY:

• Lacy describes the global and U.S. economies as weak, with declining global capacity utilization signaling future job losses. Historically, this leads to rising unemployment, both domestically and internationally. Job market conditions are deteriorating, with employment levels resembling those of mid-2023. This suggests that optimism about a resilient labor market may be misplaced.

• Lacy argues that actual inflation is lower than reported due to errors in housing cost calculations. He estimates that true annual inflation rates are around 1.8% for PCE and 2.2% for CPI, much lower than official figures. He warns that deflationary pressures, not inflation, pose the greater economic risk, as they can lead to lower wages, reduced corporate revenues, and a slowdown in spending.

• Despite a 100-basis-point rate cut by the Federal Reserve, borrowing costs remain high. Small business loans average 10%, and credit card interest rates exceed 22%, limiting economic growth. Global dollar liquidity is shrinking at 10% annually, indicating continued monetary tightening, making credit harder to access and worsening economic conditions.

• Lacy warns of a