-
Research
-
Latest Research
- Tom Lee, CFA AC
-
First Word
FSI Pro FSI Macro
-
Intraday Word
FSI Pro FSI Macro
-
Macro Minute Video
FSI Pro FSI Macro
- Mark L. Newton, CMT AC
-
Daily Technical Strategy
FSI Pro FSI Macro
-
Live Technical Stock Analysis
FSI Pro FSI Macro
- L . Thomas Block
-
US Policy
FSI Pro FSI Macro
- Market Intelligence
-
Your Weekly Roadmap
FSI Pro FSI Macro FSI Weekly
-
First to Market
FSI Pro FSI Macro
-
Signal From Noise
-
Earnings Daily
FSI Pro FSI Macro FSI Weekly
-
Fed Watch
FSI Pro FSI Macro
- Crypto Research
-
Strategy
FSI Pro FSI Crypto
-
Market Update
FSI Pro FSI Crypto
-
Funding Fridays
FSI Pro FSI Crypto
-
Concepts
FSI Pro FSI Crypto
-
Comments
FSI Pro FSI Crypto
-
Liquid Ventures
FSI Pro FSI Crypto
-
Deep Research
FSI Pro FSI Crypto
-
Miscellaneous
FSI Pro FSI Crypto
-
DeFi Digest
FSI Pro FSI Crypto
-
Technical Analysis
FSI Pro FSI Crypto
-
Latest Research
-
Media
-
Latest Media
FSI Pro FSI Macro FSI Crypto
- Video Reports
-
Macro Minute Video
FSI Pro FSI Macro FSI Crypto
-
Daily Technical Strategy
FSI Pro FSI Macro FSI Crypto
-
Crypto Video
FSI Pro FSI Crypto
- Webinars
-
Latest Webinars
FSI Pro FSI Macro FSI Crypto
-
Market Outlook
FSI Pro FSI Macro FSI Crypto
-
Granny Shots
FSI Pro FSI Macro FSI Crypto
-
Technical Strategy
FSI Pro FSI Macro FSI Crypto
-
Crypto
FSI Pro FSI Macro FSI Crypto
-
Special Guest
FSI Pro FSI Macro FSI Crypto
- Media Appearances
-
Latest Appearances
-
Tom Lee, CFA AC
-
Mark L. Newton, CMT AC
-
Sean Farrell AC
-
L . Thomas Block
-
Latest Media
-
⚡FlashInsights
-
Stock Lists
-
All Stock Lists
- Granny Shots
-
Stock List
FSI Pro FSI Macro
-
Commentary
FSI Pro FSI Macro
-
Historical
FSI Pro FSI Macro
- Upticks
-
Intro
FSI Pro FSI Macro
-
Stock List
FSI Pro FSI Macro
-
Performance
FSI Pro FSI Macro
-
Commentary
FSI Pro FSI Macro
-
FAQ
FSI Pro FSI Macro
- Sector Allocation
-
Intro
FSI Pro FSI Macro
-
Current Outlook
FSI Pro FSI Macro
-
Prior Outlooks
FSI Pro FSI Macro
-
Performance
FSI Pro FSI Macro
-
Sector
FSI Pro FSI Macro
-
Tools
FSI Pro FSI Macro
-
FAQ
FSI Pro FSI Macro
- Crypto Core Strategy
-
Intro
FSI Pro FSI Crypto
-
Strategy
FSI Pro FSI Crypto
-
Performance
FSI Pro FSI Crypto
-
Reports
FSI Pro FSI Crypto
-
Historical Changes
FSI Pro FSI Crypto
-
Tools
FSI Pro FSI Crypto
- Crypto Liquid Ventures
-
Intro
FSI Pro FSI Crypto
-
Strategy
FSI Pro FSI Crypto
-
Performance
FSI Pro FSI Crypto
-
Reports
FSI Pro FSI Crypto
-
All Stock Lists
-
Watchlist
-
Sector & Stock Screener
-
FSI Community
-
FSI Snapshot
-
FSI Academy
-
Book Recommedations
- Community Activities
-
Intro
-
Community Questions
-
Community Contests
-
FSI Snapshot
-
All Authors
Will Expanding Fed Balance Sheet, Govt Bailout Bring Inflation?
There’s been a lot of hoo-ha over the efforts of the Federal Reserve, the Treasury and Congress, all spending trillions of dollars to help the economy and markets stabilize and recover. But let’s spare a thought for those who think this spending, regardless of its good intentions, is excessive and counterproductive. Heresy, you say. Well, read on.
In The Wall Street Journal Thursday, Tim Congdon, chairman of the Institute of International Monetary Research at the University of Buckingham, England, is flat out worried about inflation. I’ll summarize here.
The Fed has poured money into the economy at the fastest rate in the past 200 years in an effort to prevent a collapse in the quantity of money, which caused the Great Depression. Unfortunately, this overreaction could turn out just as poorly; history suggests the U.S. will soon see an inflation boom, he writes. Deposits at U.S. banks have risen 6% in just three weeks, the fastest rate since the Revolutionary War. The problem now becomes financing the much-enlarged budget deficit.
Congdon thinks the deficit could hit $3 trillion and others say $4 trillion. To a large extent the gaps will be financed by the banking system, with monetary financing of the budget deficit adding to the amount of money in the economy.
It’s reasonable to assume that by spring 2021 the quantity of money will have increased by 15%, he says, and possibly by as much as 20%, outpacing previous peaks in the inflationary 1970s. Federal expenditures are rising sharply while tax revenues are being hit by the lockdown. Both World War I and World War II—and, indeed, the Vietnam War—were followed by nasty bouts of inflation. If that happens again, policy makers today being cheered for their swift, decisive action will instead have to answer for their grave lack of foresight. I can’t disagree.
Others do. Greg Ip of the WSJ noted that this year’s budget deficit should hit $3.8 trillion, or 18.6% of gross domestic product, the highest since 1945. Debt could hit 106% of GDP in 2022, matching the record set in 1946, he wrote. But he pooh-poohs the usual worry of resulting inflation. The boost to the debt from coronavirus stimulus is being offset by lower interest rates. In a debt crisis, investors worry the debt reaches levels the country may be unable to repay. They refuse to buy its bonds, sending interest rates sky high, which simply adds to the burden of the debt.
But right now, the opposite is happening, Ip argues. Five years from now, markets expect the fed-funds rate will be just 1%, half of what it expected in early 2019, according to Cornerstone Macro, an investment firm.
In early March, the CBO predicted the debt would be 89% of GDP in 2025 and interest on that debt would cost about 2% of GDP. CRFB now projects the debt will be 107%, yet interest will still be just about 2%. The Fed’s target federal-funds rate is effectively zero, and 10-year Treasury yields are below 1% for the first time. Don’t expect this to quickly reverse when the pandemic is over, Ip contends.
It might not be a quick reversal, but it will reverse, I think. Inflation could be coming.
The yield on the benchmark 10-year U.S. Treasury note was 0.59% vs 0.65% one week previous.
Upcoming FOMC meeting on April 28-29. Expect talk not action.
More from the author
This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.
This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.
FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.
FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.
As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.
FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.
This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of FS Insight.
This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.
Copyright © 2024 FS Insight LLC. All rights reserved. No part of this material may be reprinted, sold or redistributed without the prior written consent of FS Insight LLC.