New technologies have tempered some inflationary pressures, which could give the U.S. Federal Reserve some breathing room on the pace of interest rate hikes in the new year, according to a number of big investors at the Reuters Global Investment Outlook Summit.
Advances like smartphones and new software applications have lowered the cost of many services and allowed companies to expand without driving up their expenses for inputs like labor.
"Robots don't bargain for wages," said Bonnie Baha, lead portfolio manager at DoubleLine Capital.
The impact of information technology on the broader economy has been on the minds of policymakers at least since a speech by then-Fed chairman Alan Greenspan in 2000, in the middle of the dot-com boom, noting how inflation had remained low despite big gains in productivity.
But the issue has come into sharper focus in recent years as advances in mobile computing have reshaped entire industries and driven the growth of start-ups offering low prices, like ride-sharing service Uber and room-sharing service Airbnb Inc.
Rick Rieder, chief investment officer for fundamental fixed income at New York asset manager BlackRock Inc, presented an analysis at the Summit, showing that an iPhone selling around $600 today would be worth $1.44 million on the basis of how much its computing and storage power would have been worth in 1991.
"The impact on the system I think is profound," Rieder said. "You have an economy that can grow without inflation, because we are creating the ability to do what we used to do, at a fraction of the cost."
At a practical level, the new technologies complicate the traditional analysis used by Fed officials as they mull whether to raise interest rates for the first time since 2006, said Ed Yardeni, the well-known economist who spoke at the Summit.
Officially, the Fed pursues the twin goals of limiting inflation and maintaining employment, a relationship traditionally measured with an analysis known as the Phillips Curve, Yardeni said.
But it is plausible that technology serves as a deflationary force, Yardeni said, meaning the current low rate of U.S. unemployment will not push up inflation as much as before.
Or, as Yardeni put it: "If we live in an environment where there are powerful structural deflationary pressures, then why get all bent out of shape that the Phillips Curve is about to turn on you?"
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