There's actually a pretty good case for USD deflation, not inflation. Basically with a slowing economy, prices of many things will come down. This has already started with commodities like oil. Deflation plays havoc with markets.
Raoul Pal explains it pretty well in this video uploaded 5 days ago:
https://www.youtube.com/watch?v=oqKi7zL0-SA&list=PLG9wi9vGvzeWip7T_pVDCcTQqa5tMPXXG&index=2&t=0s
The fed's liquidity injections also pale in comparison to total USD denominated money, debt and liquid assets.
- M2 money stock $18 Trillion
- Market value of Federal debt $27 Trillion
- US corporate debt $10 Trillion
- US consumer debt $14 Trillion
- US total market capitalisation $30 Trillion
That adds up to $99 Trillion. Fed has put out an additional $2.7 Trillion cash into the system since February. By doing this however they remove an equivalent amount of debt from the system.
Rates of fed balance sheet expansion have fallen since March:
A lot of the money created by the fed ends up being taken out of the markets system and put into the real economy. Although they are buying more debt than usual, there is more debt being created due to this crisis. Fed is projected to buy $3.5 T worth of govt securities this year, and the govt is expected to borrow $3.7 T, so a lot of it evens out over time, with not much of a net effect over time on the stock market.
https://www.norwichbulletin.com/news/20200512/us-is-printing-money-to-help-save-economy-during-covid-19-crisis-how-far-can-it-go
2 and 5 year bond yields are still falling, indicating continued fear in the market and the unlikelihood of inflation in the next few years.
Look at what happened to the Nikkei with in an era of deflation in Japan.
