Most people want to forget this part of the 1970s.
But inflation is back, and investor Peter Boockvar predicts it will be the most prevalent in decades.
“Monetary policy … is powerless at the moment in its ability to stimulate economic activity,” the chief investment officer of the Bleakley Advisory Group told CNBC’s “Trading Nation” on Wednesday.
Boockvar warns that the problem is particularly evident in the real estate market, which is most sensitive to changes in interest rates.
“We have come to a point where very low interest rates are no longer stimulating the real estate market,” he said. “On the purchasing side, we know that the lack of inventory and sticker price increases are slowing the pace of transactions.”
Boockvar, a CNBC employee, also points out the refinance rate. Fewer people are refinancing, according to the Mortgage Bankers Association. In the past week, the total volume of mortgage applications fell by 3.1%.
For Boockvar, the longer-term trend of the Refi Index is the bigger story.
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“The Refis values are at their lowest level since pre-Covid: February 2020,” noted Boockvar. “So we no longer get this stimulating effect from very low interest rates.”
Boockvar started monitoring inflation in the middle of last year. Speaking to Trading Nation in August, he said significant advances on the Covid-19 vaccine front would ultimately create strong demand. As a result, inflation would break out.
So can something be done now to contain inflation?
“The Fed knows how to deal with it,” he said. “It’s just a question of whether you have the courage to do so.”
Boockvar doubts the Fed will end quantitative easing or hike rates earlier than Wall Street expects due to the likely impact on the stock market and economy.
“I’m in the camp that it [inflation] lasts longer than others think, “said Boockvar, who suggests that higher prices will hit almost every corner of the economy. As soon as companies raise prices, he warns, they don’t go back in one fell swoop.
Given inflationary pressures, he expects the benchmark yield on 10-year government bonds to rise above 2% before the end of the year.
“That will create its own hurdles for the stock market,” said Boockvar. “The stock market has rallied here lately and is back at highs due to the decline in yields.”
The 10-year yield closed at 1.49% on Wednesday and plummeted more than 6% over the past week.
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