Federal Reserve's Stealth Easing Fuels Inflation Fears

Lacy Hunt, chief economist at Hoisington Investment Management, has made a surprising shift in his views on inflation. As a long-time deflationist, Hunt's recent warnings about rising prices have caught the attention of fixed-income investors.

Hunt argues that the Federal Reserve has been engaging in stealth quantitative easing since December 2025. This is evident in the Fed's purchases of roughly $290 billion in Treasury securities from mid-December to June 30, 2026. According to Hunt, this amounts to a quiet injection of liquidity into the financial system, despite the Fed's restrictive public posture.

The evidence supporting Hunt's case includes the growth rate of other deposit liabilities (ODL), which surged to an annualized rate of 8.9% in the first half of 2026. This is significantly higher than the prior trend of 3.3%. Additionally, commercial and industrial loan growth rose dramatically to an annualized rate of 14.0% during the same period.

Hunt attributes these trends to structural shifts that have permanently altered the inflation calculus. He points to the reversal of globalization, which suppressed prices through cheap labor and efficient supply chains, but has now been replaced by reshoring, tariff walls, and geopolitical fragmentation. Furthermore, net national saving in the US has declined to near historical lows, another factor Hunt cites as inflationary.

Hunt's projected range for long-term inflation sits between 3.5% and 4.5%, with potential spikes above 5%. If he's right, this would have significant implications for markets, particularly bond investors, who would face a losing proposition in real terms if long-duration Treasuries yield below inflation.