MacroResearchBoard

U.S. Fiscal Policy: Too Much Of A Good Thing? – February 22, 2021

A just-published MRB report examined the impact of the forthcoming round of U.S. fiscal stimulus, including the potential upside for economic growth and inflation. The main conclusion was that there is a growing risk of overheating and higher inflation down the road. Moreover, the Biden administration could potentially pass another major spending package later this year, focused on infrastructure.

The investment implication of the evolving economic and fiscal backdrop is that risk assets will become progressively more vulnerable, since investors are discounting multiple years of fiscal policy-induced high growth, modest inflation, and a low policy rate; this leaves ample room for disappointment ahead.