What comes after the “Great Moderation”?

This Q2 market commentary summary from CUNA Mutual Group asks: Is the global economy on the precipice of a regime change? If so, what could it mean for investors?

Discussions about regime change usually occur in a geopolitical context when one country’s leaders seek to replace their counterparts in another. But emergence of regimes and changes associated therewith occur in many settings, including financial markets and the economy. Trends in both can become so dominant and entrenched that they qualify as regimes. Only big, sustained changes in the prevailing trajectory qualify as a regime change.

Is the global economy on the precipice of a regime change? If so, what could it mean for investors?

A Case Study in Economic Regime Change

In the 1970s, inflation rates rose to levels not experienced in several decades. Energy shortages galloped across the land, and rapidly rising consumer prices cast a pall on its people. Tough times led the nation’s exasperated leaders to acknowledge that a malaise had taken hold in the country. Economists and policymakers identified inflation as an insidious problem that was causing more pain than a standard recession. It was clear the inflation dragon had to be slain.

 

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