Global Head of Fixed Income Jim Cielinski discusses the economic recovery, the diminishing returns on – but still pivotal role of – monetary policy, average inflation targeting and corporate balance sheets.

Key Takeaways

  • Consumer confidence in their income outlook will be critical to maintaining a V-shaped recovery; much corporate borrowing has been precautionary or bridge financing that should help to lessen defaults, allowing companies to repair balance sheets in 2021.
  • Average inflation targeting by the US Federal Reserve (Fed) is more than just a cosmetic change as it should help limit the risk of a second “taper tantrum;" however, it is questionable whether the US or other major economies will suffer inflationary pressures beyond those attributable to temporary base effects.
  • Monetary policy is likely to face diminishing returns but remains pivotal in keeping financing costs low and depressing volatility; it is this suppression of volatility that will be key to tighter spreads.

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These are the views of the author at the time of publication and are subject to change.