Will Trillions Of Dollars In Stimulus Raise Inflation?

Before the coronavirus shock, inflation in the US appeared tame by the standard measures. But the macroeconomic earth has shifted in recent weeks to combat the fallout from Covid-19. The Federal Reserve has announced unlimited asset purchases and is running ultra-dovish monetary policy. Meanwhile, the federal government is about to roll out a new $2 trillion stimulus package. It all adds up to what is perhaps the most ambitious effort in history to grease the economy’s wheels (or at least prevent collapse). Is this herculean effort also laying the groundwork for higher or even soaring inflation?

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Macro Briefing | 26 March 2020

$2 trillion US economic stimulus package expected to become law today: Politico
What’s in the massive stimulus bill? TH
Pressure builds on Trump for gov’t intervention for ventilator output: BBG
US jobless claims filings expected to surge in today’s report: Reuters
What are the risks to Trump’s preference for reopening US by Easter? CNN
Should you expect to become immune to coronavirus at some point? NY Times
Economic assumptions upended amid coronavirus crisis: BBG
Consumer sentiment in Germany suffers dramatic decline: AF
US durable goods orders rose in Feb, but coronavirus damage lies ahead: MW
World trade’s 1-year trend fell deeper into the red in January: CPB

Econometric GDP Models Struggle With Coronavirus Fallout

The widespread disruption from the coronavirus pandemic is obvious to everyone, but economic nowcasting and forecasting models are only just beginning to reflect the damage to what had been a moderately expanding US economy. Thanks to the lag in economic data, which can arrive as long as two to three months after the fact, formerly robust methodologies for tracking the US macro trend have become hopelessly out of date in recent weeks. But reality is quickly catching up with previously sunny estimates.

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Macro Briefing | 25 March 2020

Congress and White House agree on $2 trillion coronavirus rescue package: CNBC
Trump wants US to return to work by Easter: CNN
US Composite PMI in March reflects sharp economic contraction: IHS Markit
German economy could fall 20% this year, new survey advises: Reuters
Global economy suffers as coronavirus spreads, survey data show: IHS Markit
US stocks posted the biggest gain on Tuesday since the Great Depression: Fortune
Gold surges and Goldman Sachs expects the rally to continue: MW

Managing Expectations By Simulating S&P 500 Drawdowns

The US stock market tumbled again yesterday, falling to a 3-1/2-year low, thanks to expanding coronavirus threat. The economic outlook is grim, at least for the near term, and so the market is attempting to price in this stark change. The result, not surprisingly, is a sobering, rapid fall from grace for stocks, which a bit more than a month ago reached a record high, based on the S&P 500. For the novice investor, the sharp slide in the market may appear to be off the charts. In fact, we’ve been here before, based on drawdown data. Perhaps new records for bear markets will be set in the weeks and months ahead, but for the moment it’s useful to consider how the current drawdown stacks up vs. history. In addition, running simulations on drawdowns adds another dimension of risk analytics to consider what’s possible.

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Macro Briefing | 24 March 2020

As Congress haggles over stimulus bill, economic outlook darkens: Politico
Will Trump reopen the economy, against the advice of medical experts? BBC
Fed rolls out major expansion of lending operations for corporates, munis: WSJ
Should Fed emergency lending go beyond banks? Bloomberg
Eurozone economic activity collapses in March, via PMI survey data: IHS Markit
Coronavirus woes offer business upside to technology companies: NY Times
Chicago Fed National Activity rebounded in Feb, but March data will be ugly: CF
Vanguard expects a “sharp but short contraction” for US economy: Vanguard

Macro Briefing | 23 March 2020

Senate fails to advance latest version of economic stimulus bill: CBS
Fed officials: more policy moves are available to fight economic slide: BBG
Central banks offer record sums to keep financial system afloat: Reuters
China reports drop in new coronavirus cases on Monday: Reuters
S. Korea reports lowest number of new cases since peak of 4 wks ago: BBC
69 drugs on the short list that offer hope for treating covid-19: NY Times
How the gov’t can promote a “V” shaped economic recovery: NY Times
Will coronavirus become a seasonal problem? WSJ
S&P 500 drawdown fell to -32% on Friday:

Book Bits | 21 March 2020

Radical Uncertainty: Decision-Making Beyond the Numbers
By John Kay and Mervyn King
Review via The Telegraph
That ripping sound you may have heard lately is the noise of economists around the world tearing up carefully-honed forecasts, thanks to the rapidly spreading coronavirus.
For former Bank of England Governor Mervyn King and the senior economist John Kay, the all-too-rapid redundancy of the investment banks’ glossy brochures merely underline the folly of such prognostications in the first place.
In their new book, Radical Uncertainty, the pair turn a critical gaze on their own economics profession and find it badly wanting. They paint an unsparing picture of a discipline enslaved by its models, pretending to knowledge it cannot possibly have, and losing public trust as a consequence.

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Surveying This Year’s Stock Market Damage Through A Sector Lens

It’s been a brutal year to date for US stocks, but the pain varies substantially from sector to sector, based on a set of exchange traded funds as of Thursday’s close (Mar. 19). Consumer staples, tech and health care are suffering the least among the main sectors that comprise the US market. Energy, by comparison, is deep in the hole, posting the biggest loss by far in the sector space.

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