May Outlook
May 13, 2020  |  By Hank Cunningham

The consensus view is that the massive, unprecedented monetary and fiscal stimulus unleashed to date is sufficient to contain the slump to a deep recession, avoiding the experience of the ‘30s. Already, there are pockets of recovery taking place globally, making it likely that we have passed the nadir of the recession. Of course, economists have, as in the past, resorted to labeling the likelihood of recovery as “V”, “W” or “L” shaped. One school of thought forecasts it as a “swoosh” comeback.

In the short run, inflation measures are sliding, raising the specter of deflation. At the same time, the massive fiscal stimulus is producing never-before-seen budgetary deficits; in turn, this means record issuance of government bonds. The U.S., for example, will issue some $910 billion of notes and bonds in the third quarter. The net result is likely to be an ultimate return to an inflation cycle. At present though, actions by central banks everywhere are pinning short-term yields close to zero while longer-term bond yields are moving gently higher.

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