Inflation Acknowledged By Bond Markets – Fixed Income Update

Rates stabilized in April recoiling from their ascent from the prior few weeks. Government bond yields as well as mortgage yields mildly dropped as the Fed continued to purchase mortgage and Treasury bonds at a rate of $120 billion per month, providing liquidity and a continued low rate environment.

Inflationary pressures are becoming more of a focus for bond markets as rising consumer prices are being seen on a broad scale. Treasury Secretary Yellen alluded that rates may need to rise to keep the economy from overheating. A closely followed gauge by the bond markets for inflation, the 10-year breakeven inflation rate, rose to 2.41% at the end of April, signaling an inflationary trend. Historically, the Fed has started to taper or reduce stimulus efforts once inflationary pressures are validated. (Sources: U.S. Treasury, Federal Reserve)

Equities Maintain Some Upward Momentum – Domestic Stock Market Overview

Strong earnings and economic data helped propel equities higher in April, along with abundant liquidity provided by the Fed in the form of bond buying and continued low rates. Strengthening economic data has also helped maintain equity valuations, anticipating expanding growth across the economy.

The anticipated effects of the proposed increases in capital gains may be muted since roughly only 25% of U.S. stocks are in taxable accounts, while the balance are in retirement and pension accounts where capital gains tax is not applicable.

Higher prices on numerous consumer products are leading to rising margins for many companies, translating into elevating earnings and stock prices. Comments by Fed Chair Jerome Powell on April 28th suggested that parts of the market “are a bit frothy”, alluding to some overpriced valuations. (Sources: S&P, Bloomberg, Federal Reserve)

National Debt As Percentage of GDP – Fiscal Policy

The three rounds of stim­u­lus spend­ing to com­bat the coro­n­avirus and its eco­nomic affects have con­tributed to a nearly $4.5 tril­lion in­crease in fed­eral debt held by the pub­lic, raising it to $21.9 tril­lion as of March 1. Existing federal debt is now the high­est since World War II and exceeding the size of the nation’s entire economic output, as measured by Gross Domestic Product (GDP).

Congressional Budget Office (CBO) forecasts show that the nation’s debt as a percentage of GDP will continue to increase for the following 30 years, with debt reaching nearly 200% of GDP by 2050. Various factors are taken into account when calculating future debt estimates, including economic activity, tax revenue and government spending. The currently proposed tax hikes are meant to offset not only existing debt but also possible future debt issuance should economic circumstances require it. (Sources: CBO, Federal Reserve)

IMF Lifts Estimates For Global Growth – Global Economy

Widespread vaccinations across the globe along with continued liquidity provided by central banks internationally and the Federal Reserve, have compelled the International Monetary Fund (IMF) to revise global growth projections higher. The IMF expects advanced economies less affected than emerging economies by the pandemic, which has taken a toll on emerging countries such as India and Brazil. Smaller emerging economies reliant on tourism have lost vast amounts of revenue and jobs as international travel essentially came to a halt.

In addition to economic projections, the IMF also posted other findings from its data, including demographics and humanitarian. It found that roughly 95 million people have fallen into extreme poverty over the past year due to the pandemic. It also identified an additional 80 million people worldwide that are without adequate food or are malnourished. In a separately issued report released by the IMF, the Global Financial Stability Report, the IMF cautioned that the excessive use of central bank intervention and massive debt issuance as in the U.S. may produce unintended consequences such as inflationary pressures for consumers on a wide scale. (Source: IMF)

U.S. Census Reshapes Congressional Seats – Demographics

Every ten years the U.S. Census Bureau conducts a count of U.S. residents used in the determination of various demographical programs. The Census Bureau count also reallocates seats in the House of Representatives based on population changes among the states. The appropriation of seats is known as apportionment, which allocates the 435 seats in the House of Representatives among the 50 states. This process is mandated by the U.S. Constitution under Article 1, Section 2, requiring a census and apportionment every ten years.

Results from the 2020 Census show that the U.S. population grew to 331,449,281 as of April 1, 2020, a 7.4% increase from the 2010 Census, the slowest rate since the Great Depression. The states that gained seats are Texas, Colorado, Florida, Montana, N. Carolina and Oregon. Seats were lost for California, Illinois, Michigan, New York, Ohio, Pennsylvania, and W. Virginia. Seat appointments are critical for politicians as they strive to pass and halt particular bills and legislation affecting everything from taxes to benefit payments. States that saw the largest percentage gains in population include Utah, Idaho, Texas, N. Dakota, and Nevada, while Pennsylvania, Wyoming, Ohio, and Michigan experienced the slowest population gains. (Source: U.S. Census;CB21-CN.30)