Bank of America believes that in the next economic recession, in order to maintain the reserve status of the US dollar and the Western financial system will not collapse, the Fed will follow the example of the Bank of Japan and be forced to start the yield curve control (YCC) policy.
Bank of America analysts warned that the US fiscal deficit is deteriorating, and the Great Recession is inevitable. Only the Fed can save the US government.
Michael Hartnett, chief investment officer of Bank of America and Wall Street strategist, reiterated the risk of fiscal deficit in his recent report, and pointed out that the bull market will only come if the Fed launches a YCC policy similar to the Bank of Japan.
he still expectsS&P 500 IndexIt will fall to 3800 points before March 8 this year, and reiterated that this forecast is “mainly driven by the tightening of global financial conditions”.The latest “no-landing” data for February will continue to push bond yields higher after the January “no-landing” data, makingS&P 500 Indexfall.
Resilient growth in the first half of the year will coincide with rising interest rates, but the slowdown in the second half of the year will be sharper, Harnett said.
Regarding the fiscal rescue measures implemented by the US government in early 2020 in response to the new crown virus epidemic, he pointed out that although these measures successfully avoided the economic recession in 2020, the result was that the deficit rose again, causing long-term pain.
Hartnett pointed out that “the U.S. federal deficit was as high as 6.1% of GDP due to fiscal infrastructure spending; at the peak of the economic expansion in 2000, the U.S. ran a fiscal surplus; The peak deficit of one expansion was 2.5% of GDP, but the most recent deficit was 4% of GDP.”
A recent debt projection from the Congressional Budget Office (CBO) shows that federal debt held by the US public is expected to rise from 98% of GDP in 2023 to 118% in 2033, an average annual increase of 2%.
During that period, interest costs and mandatory spending have grown faster than income and the economy, pushing up debt levels. These factors persist beyond 2033, making the federal debt 195% of GDP in 2053.
Hartnett pointed out that this represents a long-term deterioration of the US federal debt.
The US government currently has $31 trillion in debt. Hartnett said that in the next major economic recession, the Fed will be forced to start the YCC policy like Japan did, in order to maintain the reserve status of the US dollar and the Western financial system from being disintegrated.
He pointed out that “U.S. government debt will increase by $21 trillion over the next 10 years, which is equivalent to $5.2 billion per day and $218 million per hour. The greatest irony of inflation in 2020 is that in the next recession, the Fed is forced to adopt YCC Come save the American government.”
But at the same time, this is the beginning of the next big risky bull market.
