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

**SPEAKER_1** (0:01)
This episode is brought to you by Amazon Business. We could all use more time. Amazon Business offers smart business buying solutions, so you can spend more time growing your business and less time doing the admin. I can see why they call it smart. Learn more at amazonbusiness.com.

**SPEAKER_2** (0:20)
Since you're new to H&R Block, we'll look at your returns from the last three years for any money your last guy might have missed for free.

**SPEAKER_3** (0:26)
I could get money back from last year.

**SPEAKER_2** (0:28)
You could. We'll find any mistakes.

**SPEAKER_3** (0:30)
Could have really used that two years ago when I dated that mistake for five months.

**SPEAKER_4** (0:34)
Don't leave money on the table. Switch to H&R Block and get a free Second Look review. Second Look is included at no additional cost with the purchase of tax preparation. Results vary. All tax situations are different. Fees apply if you have us file an amended return.

**Lacy Hunt** (0:49)
And why shouldn't people feel lousy?
Because inflation is still high, it's coming down. But these basic necessity costs are hanging high. One of the features of the American economy is that we've been historically able to produce affordable cars and housing. They're not now. It's a residual of the accelerated money growth in 2020 and 2021 It's going to take time for that to work down. And so, folks, don't feel good about things.

**Adam Taggart** (1:28)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. 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's 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've got the great fortune to sit down today with one of the greatest living economists, Dr. Lacy Hunt, former senior economist of 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, thanks so much for joining us today.

**Lacy Hunt** (2:20)
Great to be with you, Adam.

**Adam Taggart** (2:22)
It is such a pleasure, Lacy, and such a privilege. Thank you for joining us. Very timely time to have you come join us here. I do want to note real quickly before we get into the discussion that we're going to have a bit of a discussion here, but the real meat of what you and I are going to talk about soon is going to be your presentation that you're going to be giving as the keynote presentation for the upcoming spring online conference for Thoughtful Money. Thank you again for doing that. Maybe at the end of this discussion, you can give folks just a tiny bit of a preview of the type of data that you're going to walk through in that presentation. But before we get there, lots to dig into. Since you and I last talked, we got a whole new presidential administration in with very different strategies and priorities than the one before. Real quick folks, if you want to lock in your ticket for Lacy's keynote, go to thoughtfulmoney.com/conference and do so quickly because if you do now, you can lock in the early bird discount price, which is the lowest price we're offering for the conference. All right, Lacy, lots to go through with you here. If we can, let's start with a general question I'd like to kick these interviews off with. What's your current assessment of the global economy and financial markets?

**Lacy Hunt** (3:39)
I think that it's in poor condition, not only in the United States, but globally the situation outside the US is worse than it is domestically. The challenges at home and abroad are both of a structural and cyclical nature.
But I recently was able to piece together a global capacity utilization chart, and it indicates that factories are becoming increasingly idle across the globe. And this is an important concept, because capacity utilization leads the unemployment rate, not only domestically but globally. And those that have written off the worst challenges to the labor market are behind us, I believe they will be wrong. There's still considerable challenges to the labor market. We just saw today that the difference between job prospects and the positive and negative is deteriorated very significantly, back to where it was last summer. And the various rules that economists have developed between the unemployment rate and the inflation, although they have not yet signaled a recession, there is a very likelihood that in coming months, they will. So the domestic and global economies face significant hurdles. And I believe that what we're going to see is that the inflation rate is coming down. In actuality, the inflation rate is considerably lower than it is being reported in, because there's overstatement in the critical housing components. In fact, I think that if you do a reasonable analysis of the error for the rent component, the shelter component, and adjust for it in line with the actual prices that we have, both for sales prices and rent, the personal consumption expenditures deflator is probably running 1.8 percent year over year, and the CPI only 2.2. Inflation rates are not nearly as high as it seems. There was a recent outstanding analysis by one of the nation's leading housing experts, Barry Abebe, that presented this information. So I think the road ahead of us is much more difficult than is generally believed.