As you contemplate the inauguration of President Biden this coming week, for those
wanting a dramatic change of direction, with a deficit of 15% of GDP and COVID priorities
dominating the agenda, the ability of the US Federal Government to embrace policies that can structurally alter the growth and inflation outlook are I think going to be somewhat limited, so the incoming Biden administration will be boring, in the context that Joe Biden isn’t Donald Trump but also boring in the context of the absence of radical ideas.
I am sure that President- elect Biden has a slew of policies he would like to implement, but unfortunately, he isn’t going to have the opportunity because of the mess he inherited from his predecessor.
That implies that the Federal Reserve will be required to maintain a policy stance that is
extraordinarily supportive of asset markets, only a hawkish Federal Reserve can derail this
extraordinary rally in risky assets.
With a corporate welfare state that privatises profits while nationalising losses, you have the
preconditions for a society of haves and have nots, where the haves drive consumption. I find
this troubling, but as investors, it is a model that will continue to underpin the value of assets.
I ask myself every day why the Fed continues to buy the corporate bonds of trillion-dollar
companies when it is pretty clear to everyone it is not helping any company or individual who is struggling because of COVID restrictions. Apple and Microsoft don’t require Fed assistance.
The Fed’s issue is not about supporting those who need it. They are concerned about the market consequences if they stop. And given the outlook for the Biden administration, the Fed will continue to expand its balance sheet. This will continue to underpin asset markets despite the likelihood that US long-dated yields may have seen their lows for the cycle.
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