What is it: back to the 70s or to pre-WWI?
SPY•Investors are confident AI-related investment will support equities and a post-midterm rapprochement between Washington and Tehran will help contain energy prices. Deutsche Bank strategist Henry Allen says high sovereign yields, elevated debt and persistent supply-driven inflation constrain fiscal and monetary responses, echoing the 1970s and pre-World War I.
1. Stabilizers face constraints
Markets could face a mix of slowing growth and persistent inflation if assumptions about AI investment or energy prices prove misplaced. Deutsche Bank macro strategist Henry Allen says fiscal policy faces constraints from sovereign yields at multi-year highs and debt-to-GDP ratios at their highest in several decades, while monetary policy is constrained by persistent, increasingly supply-driven inflation.
2. Historical parallels
Allen says the backdrop resembles periods when economic stabilizers were constrained or left unused, including the 1970s and the pre-World War I era. He cites the gold standard and balanced-budget orthodoxy as limits on governments’ ability to support growth and smooth economic cycles.
