Biden, Yellen and Powell drive the new paradigm on growth & inflation. It’s up to the markets to adapt.

Key highlights
  • The Biden administration and the Fed, want to enhance the US growth based on robust household demand and solid private investment.
  • They need inflation to achieve their goal. The Fed will prevent sharp increases in real interest rates.
  • Inflation will recover more gradually than investors fear. The Fed should not taper in the near-term.
  • This scenario is good for equities, credit and reflation trades.
Seeyond answers the hot questions raised by investors:

Will US nominal interest rates increase till the end of the year?
Yes, we think so.

Will US nominal interest rates increase in such amplitude and such speed, as recently?
No, we don’t think so.

Will US inflation increase till the end of the year?
Yes, we think so.

Will US inflation increase in such a way that the Fed will taper very soon?
No, we don’t think so. Reflation will take time. Breakeven bond market already realized the reality of the current moderated inflationary pressures. Stock market, whose horizon has been shortened by the massive liquidity inflows, should follow suit soon. Investors have forgotten how to deal with inflation over the last decades and fear rate hikes. They need to be re-educated!

Written in March 2021.

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