“We got a sense of Congressional spending fatigue when we visited Washington a few weeks back,” Tobias Levkovich, Citi’s chief US equity strategist, told clients this week.
His team now thinks that $4 trillion to $4.5 trillion in new spending plans “appear likely to be scaled back” to less than $3 trillion, reducing the boost to the country’s economic output.
“While a bipartisan deal on a broad infrastructure package cannot be ruled out, we continue to think the odds are against it, as there seems to be little agreement on financing it,” Goldman Sachs strategists told clients Monday.
The United States isn’t the only place where policymakers appear increasingly skeptical about maintaining historic levels of government spending.
In the United Kingdom, government borrowing fell by £19.4 billion ($26.9 billion) in May compared to the same month last year, the Office for National Statistics said Tuesday.
But it was still the second-highest level of May borrowing since monthly records began in 1993, and “way above what would be sustainable over the medium-term,” said Isabel Stockton, research economist at the Institute for Fiscal Studies.
Investors should pay attention as conversations about the sustainability of government finances ramp up. Ongoing fiscal stimulus has been a key part of rosy forecasts for risky assets like stocks this year.
The Organization for Economic Cooperation and Development warned in its most recent economic outlook that “it would be dangerous to believe that governments are already doing enough to propel growth to a higher and better path,” especially as they try to decarbonize their economies.
The Paris-based group said strong fiscal support this year remains “appropriate,” and that it while planning around managing public finances should start now, “ensuring debt sustainability will be a priority only once the recovery is well advanced.”
Jerome Powell gets grilled on the Fed’s Covid response
There’s one man that everyone on Wall Street wants to hear from, and he’s about to take center stage in Washington.
The latest: Federal Reserve Chair Jerome Powell will answer questions from lawmakers on the central bank’s Covid-19 response at 2 p.m. ET Tuesday.
According to prepared remarks, Powell will emphasize that the US economy “has shown sustained improvement” in recent months, and that “conditions in the labor market have continued to improve, although the pace has been uneven.”
But most closely parsed will be his remarks on rising prices. Last week, the Fed increased its 2021 inflation forecast to 3.4%, a whole percentage point higher than its previous estimate. That raised anxiety that the central bank could be forced to imminently reduce its pandemic-era support for the economy.
In his testimony, Powell acknowledges that “inflation has increased notably in recent months,” the result of higher oil prices, the rebound in spending and supply chain bottlenecks.
He continues to maintain, however, that this phenomenon will be transitory.
“As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” Powell will testify.
But stocks climbed Monday, snapping a losing streak as some investors decided it may be too soon to worry about the Fed changing course.
“We must keep in mind that many of these [price] increases are simply reversals of the large declines we saw last year when the pandemic first took hold,” New York Fed President John Williams said in a speech Monday. “Once these prices have fully adjusted to the reopened economy, they shouldn’t continue to increase at recent elevated rates, and their effect on overall inflation should subside.”
How Netflix is thinking about the future
The details: Spielberg’s film and TV production studio, Amblin Partners, will produce multiple new feature films per year for the service.
Spielberg has been critical of streaming in the past. In 2018, he told ITV News that “once you commit to a television format, you’re a TV movie.” He’s since softened his stance. “I want people to find their entertainment in any form or fashion that suits them,” Spielberg told the New York Times in 2019.
Watch this space: Financial details were not disclosed, but you can guess that Netflix is shelling out quite a bit of cash for this tie-up.
Paying the big bucks is central to Netflix’s strategy to stay ahead of competitors like Disney+ and HBO Max, owned by CNN’s parent WarnerMedia. Netflix has said it plans to spend $17 billion on content this year.
Up next
Also today: Existing US home sales for May arrive at 10 a.m. ET.
Coming tomorrow: Data on new US home sales for May.
Source : CNN