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February 10, 2021

Why the markets back Biden’s Covid Relief Bill

By Paul Dennis

10 February

Greg Ip, a journalist and economics commentator for The Wall Street Journal, shared an article on markets disagreeing that Biden’s $1.9tn Covid relief bill is too much.

Instead, investors have predicted a sort of inflation that they like – slightly higher in the next few years but moderating down after that.

President Joe Biden’s Covid stimulus package came with a lot of resistance and warnings from left-leaning economists, that it is so large that it risks runaway inflation and the crowding out of other, more productive, spending plans.

However, despite reasonable arguments around it, markets did not show any signs of concern either in the average expectation of inflation implied by the bond market or the likelihood of high inflation in the options market, both of which are back to where they stood in 2018.

Investors maintain that the initial rise and subsequent fall in prices will help stocks and commodities while limiting the pain to bondholders from rising yields.

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