October 6th Update – The prospects of Inflation with a Democratic victory

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1) Jerome Powell this morning reiterated his concerns for deflation in the future. Despite the growing economic data, we need to comprehend that the nation states have injected at least $12 trillion in fiscal stimulus to keep the economy moving forward. Without this massive support, the economy would have spiraled down.

Fed Chair Powell calls for more help from Congress, says there’s a low risk of ‘overdoing it’

2) While a growing consensus of traders are concerned that the Democrats will step up fiscal stimulus and social spending, my take is more straightforward. Saner heads will eventually prevail, and if the USDX falls while bond yields rise, Democrat leadership will scale back their ambitions. I also have to believe that most of the large spending initiatives are not very feasible to begin with. For instance, I doubt any comprehensive student loan debt forgiveness can ever be enacted. That would prove very inflationary and costly to the government.

IMF warns of a ‘long ascent’ to pre-crisis levels, but will soon upgrade its GDP forecasts

3) We need to keep in mind that there are a number of possible deflationary scenarios that can be triggered if inflation begins to climb above trend. We are entering the winter season in the Northern hemisphere, and TPTB can easily enact more lockdowns. Keep in mind that these crises are all manufactured anyway.

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