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The Internet Helped Kill Inflation In America, Says Credit Suisse

Whether or not San Francisco Fed President John Williams is right about US inflation and employment being about as close to the central bank’s targets as investors have seen – as he told CNBC two days ago – is irrelevant: The central bank is going to raise interest rates two more times this year no matter what happens to consumer prices, says Credit Suisse Chief Investment Officer for Switzerland Burkhard Varnholt.

That’s because it’s pointless waiting around for prices to rise when the real reason inflation is low – and will likely remain low – has nothing to do with the Fed, but with a structural shift in the US economy that’s being driven by technology giants like Amazon and Uber. Burkdard says these companies have “turned most companies and sectors into price takers rather than price makers.”

Burkhard Varnhlot

Burkhard Varnholt - Click to enlarge

“Well look, inflation has been gone for quite some time and what’s really killed inflation clearly isn’t the Federal Reserve’s monetary policy but the Internet – it’s the sharing economy, the network economy it’s the uber-deflationary companies like Uber, Amazon, Airbnb and the like who have transformed most companies and most sectors into price takers rather than price makers.”

When asked if there’s anything about the market that investors might be ignoring, Burkhart replied that investors might be underestimating demand for bonds in the coming years – especially at the long end of the curve.

“Monetary policy in 2017 will be about ‘walking the talk.” That means two rate hikes as [the Fed has] guided the public to expect will likely come forward, but that’s a small step in not a big picture, because the big picture – is that capital markets yields will remain lower for longer in the absence of inflation and also in the presence of structural excess demand for long-dated government securities from aging populations whose pension funds.”

Williams, who isn’t a voting member of the Fed’s interest-rate setting committee this year, has stuck to the Fed party line of calling for three rate hikes this year despite core consumer prices rising just 1.9% in April, the slowest pace in 19 months, while the labor force participation rate remains near multidecade lows.



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Tyler Durden
ZeroHedges' Tyler Durden is the hero of Fight Club, the 1999 movie based on Chuck Palahniuk's novel that reflected Chuck's experience in the Cacophony Society Quote: "Goddamn it, an entire generation pumping gas, waiting tables, slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off." --> see more about Tyler on snbchf
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