Our Market Optics chartbook contains data-driven insights that power our portfolio management teams’ views, ideas, and decisions. Each week, we’ll take a look a closer look at one of the charts.

This week’s topic: Global economy: Fiscal policy

·         With the COVID-19 crisis (hopefully) mostly behind us, fiscal policy is set to become less accommodative over the next few years.

·         In Washington, D.C., policymakers agreed to hike the debt ceiling by enough to hopefully tide the government over until December 3. December 3 is also the day the stop-gap funding bill of the government expires. Between now and then, Democrats will be negotiating within their own caucus how to get a longer-term spending bill passed via the reconciliation process. Originally, the headline number for the budget was $3.5 trillion, but that may be $1 trillion to $1.5 trillion too far for more moderate members of the party. The bipartisan infrastructure bill is stuck in limbo for now as well.

·         The costs of debt are still low, but the bills will eventually need to get paid through faster growth, higher taxes, or lower spending in the future. We could see a couple of years of well-above-trend growth as economies reopen and we could even see trend growth inch higher with a capital spending spree by businesses and governments that can improve productivity. We’re also already seeing proposals for higher taxes, like in the U.K. and the U.S. with a variety of corporate and individual tax rate changes.

 

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