How long will rising inflation last? We polled 30 market strategists, and here's what they said

Published Mon, May 31 20212:25 AM EDT

Just about every investor knows that inflation has arrived . The open question is, how long will it last? CNBC International conducted a survey of 30 high-profile market strategists to get their take on inflation, a key factor that the U.S. Federal Reserve will gauge to assess whether it should keep easy money flowing into markets. Under the Fed's so-called accommodative monetary policy , the central bank boosts money supply by snapping up long-term bonds from the open market and holding down interest rates. More money in circulation usually means a more vibrant economy — and higher stock prices. The strategists also forecast when they expect the Fed to announce a timeline for withdrawing stimulus and how they expect markets to react when that news comes. CNBC offered the strategists anonymity in exchange for their views. All 30 were based in either Asia or the United States, and the polling took place from May 17-21. Of the 30 strategists polled, 21 told CNBC they believe inflation is temporary as the United States and other advanced economies try to shake off the hit they took during the global pandemic. The remaining nine respondents predicted a long-term, sustained rise in consumer prices. Last year's massive economic hit makes this year's numbers look more abnormally high than they are, according to respondents. Brent crude , for example, has more than doubled in price from its average during last year's second quarter, but that's largely because of the tremendous hit that demand for oil took last year. Reflation is not inflation. U.S. fund manager Separately, lockdowns and restrictions in many parts of the world have raised costs for manufacturers, which have in turn passed on those costs to consumers. But most of the big investors who spoke to CNBC expect the burst in economic activity taking place this year to moderate next year as pent-up demand diminishes. "Reflation is not inflation," said one big U.S. fund manager. Some respondents pointed out that developed countries have aging populations, which translates into lower consumer demand and acts as a brake on inflation. So does the increased use of automation in manufacturing and other business processes, which holds down wages. High levels of consumer debt — a problem in advanced countries including the United States — put a brake on inflation. Another U.S.-based investor pointed out that rising inflation has come about at least in part by design. Central banks want more inflation along with higher growth. "Central banks are making a policy choice, [and] when developed market inflation moves above 2.5%, central banks will shift course," the person said. Among the nine respondents who think inflation is here for the long term, one expressed impatience that the Fed still hasn't pulled back on monetary support for the economy. "If the economy is recovering and the Fed said it expects to have a 4.5% unemployment rate by the end of 2021, why do we still need to be in crisis monetary policy?" the investor asked via email. "Why then does the Fed still need to buy $120 billion in assets per month?" The same strategist pointed out that there's $4 trillion of cash sitting in money market funds, and "this will get put to work in some form," in turn either putting a floor under asset prices or even pushing them higher. When will Fed announce tapering? Another big open question for the markets is when will the Fed will give a timeline for withdrawing its monthly stimulus, which comes in the form of bond purchases. Of the 30 strategists polled by CNBC, exactly half said the Fed will outline a plan for tapering stimulus at either the Jackson Hole Symposium held in Wyoming in August or at the Fed's September meeting. What will tapering do to markets? Nineteen experts said the announcement will cause a decline of the S & P 500 of no more than 10%, in line with the last "taper tantrum" of May-June 2013, which saw the index fall by 8%. Another two respondents predicted no impact on markets, and one expects a dip followed by a gain. One fixed-income strategist said: "the Fed withdrawing stimulus is only an acknowledgement of economic recovery from the pandemic. Hence, the market's reaction would be more measured as we have been here before." Among strategists who see a greater decline for the S & P 500, six put the fall at 10-15%, and two forecast a plunge of 15-20%. First rate hike? When asked about the Fed's timeline for raising interest rates, strategists were diverged greatly. The largest group, 10 strategists, predicted a rate hike in the first half of 2023. Six said it will come in the second half of 2023. Nine respondents told CNBC that they expect a rate hike in the second half of 2022, with three forecasting it even sooner, in the first half of next year.

Shoppers maintain safe distance in a checkout line in Torrance, Calif.

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Just about every investor knows that inflation has arrived. The open question is, how long will it last?

CNBC International conducted a survey of 30 high-profile market strategists to get their take on inflation, a key factor that the U.S. Federal Reserve will gauge to assess whether it should keep easy money flowing into markets.

Under the Fed's so-called accommodative monetary policy, the central bank boosts money supply by snapping up long-term bonds from the open market and holding down interest rates. More money in circulation usually means a more vibrant economy — and higher stock prices.

The strategists also forecast when they expect the Fed to announce a timeline for withdrawing stimulus and how they expect markets to react when that news comes.

CNBC offered the strategists anonymity in exchange for their views. All 30 were based in either Asia or the United States, and the polling took place from May 17-21.