Lacy Hunt: Fed's Been "Stealth-Easing" Since December
“We’re seeing a major secular shift, that we’re now moving into a period of capital shortage, as well as we’re witnessing the end of the three-decade period of globalization, which led to significant disinflation.”
That prediction comes from Dr. Lacy Hunt, once one of the bond market’s most prominent bulls and secular disinflationists. Well… no longer. He’s now a seller of U.S. long-dated bonds and suggested during last night’s discussion on ZeroHedge that he’s eyeing gold favorably.
Lacy told Thoughtful Money’s Adam Taggart and Brent Johnson of Santiago Capital that inflation is here to stay so get used to it and plan accordingly:
“There will be intermittent episodes when the secular forces will fade, but the big picture is considerably different. We’re going to have higher inflation. We’re going to have greater volatility in inflation. The trend in interest rate is going to be higher. And we’re going to have generally poor economic performance.”
Here were the highlights of Lacy’s tour de force, but we highly recommend the full 75-minute discussion in its entirety:
Net national savings “very close to zero”
Hunt began his case with two forces: a shortage of capital and the reversal of globalization.
“The Federal Reserve cannot solve the capital shortage situation. They can increase the money supply, but to have physical investment you need saving out of income.”
Money printing and rising rates has an increasingly deleterious effect on private investment, which will be vital to keep up with the AI boom. Higher government bond yields means the private sector needs to work harder to compete… why take risk when Uncle Sam guarantees 5% or more?
“We’re financing artificial intelligence. We’re building an expansion of semiconductors. We need to expand the electrical grid… We’ve got a massive federal budget deficit that’s deteriorating.”
Atop that, Hunt said net national saving is “very close to zero.” Net national savings is defined as the total amount of money saved by households, businesses, and the government minus the cost of replacing worn-out capital goods (depreciation).
“So there is going to be this tremendous demand for capital, which suggests that real interest rates will have to rise. And because the overall inflation is going to be going up at the same time, that means that this will reinforce the rise in nominal interest.”
— ZeroHedge Debates (@zerohedgeDebate) August 21, 2026
Fed’s been “stealth easing” since December
Since mid-December, the Fed’s balance sheet has expanded by roughly $200 billion. So for all the talk of a hawkish Fed, they’re still a net buyer of Treasuries. Additionally, bank deposits and bank lending are up.
“Bank deposits and bank loans in particular, they’ve surged very dramatically since mid-December… so now you have an uptick in deposit growth and money supply growth, which in my opinion is moving further into the inflationary direction.”
This kind of monetary support, Lacy argued, only creates a longer-term problem by encouraging investment in financial assets rather than productive ones.
“When the Federal Reserve comes in and gives a signal to the market that they’re going to support the stock market... then what that serves to do is it’s a signal to the corporate managers that they should put more investment in financial assets and less investment in real assets.”
“But here’s the rub. It’s the real assets that raise the standard of living, not the financial investments.”
— ZeroHedge Debates (@zerohedgeDebate) August 21, 2026
Watch Lacy's full deep dive below or listen on the ZeroHedge Spotify. If one of the longest running bond bulls is throwing in the towel… it might be time to pay attention.
— zerohedge (@zerohedge) August 20, 2026