Government Spending & Mid-Year Economic Review
Inflation continues to be the hot topic in financial markets and is shaping up to be a defining macro story of the next decade. One aspect of the inflation debate which we did not touch on in our Inflation Fixation note is what about the monetary and fiscal stimulus? US Government spending in response to fighting Covid was the highest since World War 2 at over 30% of GDP with more spending in the pipeline. The spending is high in a vacuum but it is also coordinated throughout the World by both Central Banks and Governments. What’s more is we have a new Presidential regime which has made spending a pillar of its social policy signaling that austerity is probably not in the cards.
Could this combination of a hesitant Fed, aggressive stimulus injection, and ambitious future spending goals signal that the Fed will be behind the ball on curbing inflation? Or will the structure of the economy and a calibration of supply chains revert the World to the muted inflation regime of the last decade?
To explore this we recently put together our Mid-Year Economic Review where we take a deep dive into this inflation debate and the factors affecting it going forward. We also revisit some of the developments from our January Outlook and how we are preparing for the second half of the year. This document is attached here: Mid-Year-2021-Economic-Outlook.pdf.
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