Monetary Policy & Inflation | Politics & Geopolitics | US
Sonal Desai, Franklin Templeton’s Fixed Income CIO, discusses concerns and ideas for the US in the year ahead.
• US politics will be the main source of volatility this year given the November election. Some radical policy proposals from leading democratic candidates could significantly change the business environment with a negative impact on economy and markets.
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Summary (You can listen to the podcast by clicking here)
Sonal Desai, Franklin Templeton’s Fixed Income CIO, discusses concerns and ideas for the US in the year ahead.
• US politics will be the main source of volatility this year given the November election. Some radical policy proposals from leading democratic candidates could significantly change the business environment with a negative impact on economy and markets.
• Deregulation has supported growth much more than is appreciated and any reversal could have a significantly negative effect.
• On the macro side, US GDP growth is projected at a fairly healthy 2.5-2.75% this year. Public spending and debt are likely to keep growing, stretching treasury valuations further. The Fed is likely to keep rates anchored at low levels, leading to asset prices bubbling up.
• It’s dangerous to assume low inflation will stay forever. The labour market is strong, and this is beginning to show up in corporate labour costs. Technological advances are not guaranteed to be disinflationary forever.
• Loose monetary policy may be sowing the seeds of future financial instability. Secular stagnation may not be so secular after all, and productivity growth may not remain sluggish once digital innovation finally makes its way through the economy.
• Finally, Desai believes the global shift towards greater nationalism is here to stay, and (as we have recently discussed on Macro Hive) she sees growing US-China tech rivalry evermore present.
Why does this matter? Like Deutsche Bank, Franklin Templeton is bullish on growth. However, they both emphasise Trump’s deregulation as a key driver, which could be unwound with a Democrat win in the upcoming US election. Also, they appear more concerned about inflationary pressures building.