“The demand side of the market has moved forward much more strongly than the supply side,” he said. “Those things we would expect to get fixed once the supply of chips is restored.”
Despite the fact that inflation now stands at 5% – the highest level since 2008 – Duncan believes inflationary pressures are “transitory” (that same word was used by the Federal Reserve on Wednesday).
While the pressures are largely driven by COVID-related factors that are expected to recede, he admits “persistent inflation” could hold growth back, a view held by the Economic and Strategic Research (ESR) Group, which recently predicted the economy slowing down to 5.5% in Q4 from the current 7.1% estimation, and to continue that decline through to 2022.
The fact that the Fed also hinted there could be as many as two rate hikes in 2023 – much against market expectations – suggests inflation is more than a trifling concern.
“We do believe that this year inflation will run at about 5% – that’s the headline level – and of course how the Fed would like to see it, but they’re going to be patient and let inflation run ahead of their 2% target average,” Duncan said.