Evidence appears to be mounting that inflation is on the horizon, in part because of massive deficit spending in the United States and Europe to stave off economic damage inflicted by the coronavirus pandemic and partial economic shutdown. U.S. economists have expressed concern around President Joe Biden’s $1.9 trillion stimulus plan and the $1,400 checks that will be received by most citizens. The ensuing spending surge could set the economy on full boil and drive prices skyward and create a broader economic disruption. That expenditure would come on top of the trillions spent by euro zone governments to underwrite companies and jobs so they can survive the pandemic.

Evidence: Already, key prices are rising, such as the cost of Brent crude, which topped $60 per barrel for the first time in more than a year, and commodity prices generally have been on the rise. As the price of precious and semi-precious metals have risen, reports surfaced of thieves stealing the catalytic converters from automobiles to extract palladium and other metals they contain. Space on container ships has seen costs rise 180 percent over the past 12 months, while a shortage of semiconductors is expected to trigger higher prices that could raise the cost of everything from automobiles and smartphones to computers and medical equipment.

Ramifications: Higher inflation means interest rates are likely to rise in response, prompting consumer and businesses to curtail spending as the cost of borrowing increases. Stock prices would be poised to fall. With both Wall Street and Main Street maimed, recovering domestic and overseas economies could be driven back into the doldrums. To propose more government stimulus at that point to give the economy some buoyancy would almost certainly run headlong into fierce opposition from deficit hawks who had held their tongues in the interest of getting past the wreckage of COVID-19.

Reassurances: Treasury secretary Janet Yellen has offered her assurance that U.S. officials have plenty of arrows in the quiver to fight off inflationary times. That could mean resuscitation of the playbook successfully executed by former Fed chairman Paul Volcker, who adopted a tight-money policy to tame inflation during the Reagan administration. That infuriated Reagan because the policy was a drag on the economy, particularly manufacturing, real estate and farming. But the six-foot eight-inch cigar smoking Volcker turned the tide on inflation, which had been sapping the strength of the U.S. economy since the mid-1960s, and ignited an economic expansion that swept Reagan into a second term as president. What Yellen and current Fed chairman Jerome Powell might have in mind remains to be seen.

Missed opportunity: With inflation and interest rates low, infrastructure advocates have been insisting for years the time is right to spend big and rebuild the country’s deteriorating infrastructure. Both political parties have been touting their desire to draft and ratify a $1 trillion infrastructure bill, though they cannot agree on the components of the bill. If high interest rates do make a comeback, this would be considered an opportunity that has gone by the boards, and taxpayers will be required to spend bigger for the same effect.

In the meantime, economists, business leaders and investors nervously wait and watch.

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.