There is no stopping the Biden administration. The economy is recovering well. And yet, the US president is determined to push ahead with the biggest fiscal reflation in decades. A $6tr budget for 2022 will leave the US Federal government with a deficit of $1.8tr. Federal government debt outstanding will swell to $30tr.
The Biden administration is doubling down on Trump’s failed fiscal policy experiment. Federal government revenue projections depend heavily on the IRS improving the tax yield, an exercise fraught with risks.
Fiscal reflation on this scale threatens a bond market revolt. The Biden administration is relying on the Federal Reserve to keep Treasuries under check.
But Fed officials are balking. Federal Reserve vice chair, Randal Quarles, has warned that the increase in US inflation since December would “prove sufficient” to merit a cut in asset purchases later this year.
Summary
• Biden undeterred by talk of Fed tapering
• Labour market tightens
• Services inflation accelerating
