U.S. President Joe Biden attends an event announcing that the administration plans to double the order for the Johnson & Johnson coronavirus vaccine and obtain another 100 million doses, in the South Court Auditorium the White House in Washington, March 10, 2021.
Tom Brenner | Reuters
According to the president of Embark Group, Peter Toogood, the change of emphasis for fiscal stimulus in the US under President Joe Biden put an end to the end of Reaganomics.
The government and the Federal Reserve have used unprecedented levels of support over the past year to lead the economy out of the coronavirus crisis.
Last week, Biden signed a $ 1.9 billion relief bill handing out $ 1,400 stimulus checks to individuals in approximately 159 million households. Meanwhile, the Fed has committed itself to continuing its loose monetary policy, signaling that it is prepared to exceed its 2% inflation target if necessary.
Stock markets have been volatile in recent weeks as bond yields have risen, coupled with expectations of higher inflation, raising concerns that central banks may begin to wind down some of the current stimulus measures.
Investors in equities have shifted towards more cyclical equities, which are likely to benefit from the economic recovery, while pandemic winners such as the technology sector have lagged behind.
Toogood told OilGasJobz’s Squawk Box Europe on Monday that the market was responding logically to the “major underlying change” in US spending.
“We’ve made huge savings, we’ve given away and developed the most amazing fiscal and monetary stimulus in the US, but also elsewhere – unparalleled – and then we have 25% growth in money supply, which is the first time we have it. really had since the 80s, ‘Toogood said.
The expectation that the money flow in the US will increase following promises by Fed Chairman Jerome Powell and Finance Minister Janet Yellen to ‘grow up’ means that markets are adapting to a new goal of a ‘ massive increase in nominal GDP ‘, he suggested.
Toogood said Powell’s focus on using ‘the poorest person in the poorest state’ as a yardstick to define full employment has fundamentally shifted the focus from monetary policy.
“We took the corona war and we turned into a war against inequality. It’s led by Biden and it’s a big change of emphasis, and I do not think it’s really understood,” he said.
“This is almost the end of Reaganomics, and I want to go that far. It’s unprecedented spending in the United States.”
“Reaganomics” refers to a set of economic policies promoted in the 1980s by former President Ronald Reagan aimed at reducing government spending, income taxes and regulations, and slowing the money supply to curb inflation.
It also endorses the dilapidated economic theory, which proposes that tax cuts for businesses and the wealthy stimulate short-term business investment, which moves down the economic ladder in the long run.
Toogood noted that if the current conversion fails, the US and other major economies could sink into the kind of long-term economic stagnation seen in Japan. If it succeeds, however, a significant rise in inflation rates should be expected.
“The market acts rationally. It sells the things that long-term earnings have priced into them,” he said.
“You want a shorter duration if the rate of return rises, and especially if it increases as aggressively as it is, so far the market is logical.”
The yield curve shows the yields of bonds with equal credit quality over a range of maturities. Normally, long-term bonds have higher interest rates than those of shorter duration, which means that the curve moves obliquely over time. As the distribution between them increases, the yield curve worsens.