Skip to main content

The Deflationary Era Is Over — Is Inflation The New Normal?

Adam Taggart | Thoughtful Money® Aug 24, 2026

Summary

Economist Lacy Hunt now credits the decades of disinflation to expanding global productive capacity, not to rising debt as he long argued.

The global production function (the world's capacity to produce goods) is now shifting inward, so capital shortages may outweigh debt's disinflationary drag.

America's net national saving rate (all saving available to fund investment) sits below 1% versus a historical average near 7%.

Hunt argues Federal Reserve money creation cannot replace real savings and would pass energy costs straight into consumer prices, worsening inflation.

If the supply reversal holds, inflation becomes a structural feature of the economic landscape rather than a temporary shock.

Adam Taggart's takeaways

  • Top takeaway Taggart frames the interview around Lacy Hunt's pivot from warning about debt-driven deflation to seeing the economy as net inflationary, and presses him on why debt's disinflationary effect no longer dominates his outlook.
  • He raises the very low US national savings rate and the view that productive investment must come from saved capital rather than Fed or Treasury financial gimmicks, asking whether savings has turned negative.

Lacy Hunt's takeaways

  • Top takeaway Hunt revises his earlier interpretation, arguing the disinflation of the earlier period came mainly from a dramatic outward shift of the global production function rather than from debt itself, though rising interest expense also pulled spending away from normal levels.
  • He now sees the world's aggregate supply curve shifting inward because of a capital shortage, which he expects to overwhelm debt's still-present disinflationary effect and leave outcomes net inflationary.
  • As of the August 2026 interview, he puts net national savings only slightly positive at less than 1%, versus a historical norm of almost 7% in data back to 1929, with past negative episodes in the 1920s and during the GFC.
  • He stresses the economic identity that physical investment must equal saving across the household, business, government, and foreign sectors, and argues minimal current saving constrains productive investment.
  • He argues that Federal Reserve money creation in the current environment would only allow the pass-through of energy and other costs and would worsen inflation rather than add real productive capacity.