At the recent Jackson Hole symposium, Federal Reserve chairman Jay Powell said he saw no “elevated risk” of the US economy overheating. Others would beg to differ, as US GDP growth shoots above 4%, the S&P 500 extends its longest-ever bull run, merger and acquisition activity takes off and buybacks accelerate.
President Trump’s current fiscal experiment is unusual, coming at a time when the US economy was already strong. Robert Love, head of research at Asset Intelligence, says: “The Trump administration’s tax cuts and spending increases represent a sizeable fiscal stimulus at a time when the economy is at full employment, so overheating risks could emerge on the horizon. This would put pressure on bond yields and interest rates to rise further, a risk which is already alive due to the Federal Reserve’s ambitious plans to reduce the scale of its balance sheet.”
