INFLATION, INTEREST RATES AND ASSET PRICES

Cheap money has, of course, been the catalyst for all manner of asset price rises, and the assumption is that this cheap money is here for the foreseeable future. As Professors Marsh, Dimson and Staunton put it in this year’s Credit Suisse Global Returns Yearbook, “the policy dilemma of if, and how, to unwind these crisis measures looms large, particularly with inflation expectations hardening” – no central banker wants to be the one to choke off a recovery by tightening too soon. That means that stretched valuations, whether of shares or property or anything else, are also likely to remain a feature of markets for some time – until the inflation genie finally escapes its bottle.