Market Outlook

Q1, 2021: Redefining Normal


Growth, Inflation & Policy


  • U.S. real GDP growth is expected to have dropped 2.4% year-over-year in Q4 and 3.5% for the full year. It is expected to bounce back by 5.2% in 2021 (Bloomberg).
  • The significant damage to the private sector and fact that fiscal multipliers are generally negative, especially in highly indebted countries, means that real (inflation-adjusted) growth is going to be become increasingly harder to achieve.


  • While current inflation is relatively low, long-term inflation expectations have continued to trend higher. The 10-year TIPS-implied inflation rate is currently 2.1%, near a 7-year high.
  • Economic slack, continued technology adoption and excessive debt levels will act as a damper on inflation until MMT-inspired “helicopter money” becomes ongoing policy.
  • On balance, we expect inflation to trend higher in fits and starts (higher lows and highs) in coming years.


  • To date, fiscal stimulus has been more reactive (replacing lost income) than proactive (stimulus).
  • We believe policy will start to become more proactive and supportive/ distortive for at least three reasons:
    1. Single party control of the U.S. government
    2. The de facto merging of the Fed and Treasury
    3. The Covid-19 crisis removing social and political pushback to government spending and bailouts

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