Market Outlook

Q2, 2021: Throw the Confetti

Summary

Growth, Inflation & Policy

Growth Snapback

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.

Inflation Trending Higher

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.

For additional market insights, download our complete market outlook report.

Subscribe to our Insights

Share

Download Print Friendly PDF