Lacy Hunt & Brent Johnson: The US Has Entered A New Inflationary Era That Will Prove Bad For Bonds

The global economy is undergoing a secular shift toward higher inflation and increased volatility, driven by a structural shortage of capital and the end of the globalization era. Massive demand for physical investment in artificial intelligence, energy infrastructure, and defense coincides with a near-zero net national savings rate, creating an intractable fiscal imbalance. As supply chains move from cost-efficient models to resilient, localized networks, the resulting fragmentation erodes economies of scale. Furthermore, federal budget deficits and interest expenses are ballooning while money supply growth significantly outpaces potential economic output, which is constrained by aging demographics and a stagnant labor force. These factors, combined with the diminishing effectiveness of traditional Keynesian policies, signal a long-term trend of rising interest rates and deteriorating standards of living, challenging the viability of current fiscal and monetary strategies.