Thread: Substantial Further Progress

1/ Everywhere we turned this week there was dismissal of supply-side economics. As Larry Lindsey stated on CNBC Friday morning, the plan is ‘to tax the supply-side of the economy and increase aggregate demand.
2/ More demand and less supply, it isn’t hard to figure out what happens next.’ In Chairman Powell’s press conference discussion of inflation, he described both base effects and bottlenecks as transitory, apparently never considering that stretched supply chains
3/ were increasingly vulnerable, and the decades of disinflation was primarily attributable to imported goods inflation resulting from a massive increase in the supply of labor.
4/ If your reaction is akin to, “so what the stock market keeps going up,” we agree, at least to a point. The US is in the early stages of progressing from a disinflationary to a reflationary regime where stocks outperform bonds, and cyclical sectors outperform defensives.
5/ The combination of a Federal Reserve that has shifted its primary focus from inflation to employment and an administration that is following the same expansive Great Society road map has the economy on a similar path as the ‘60s.
6/ The passage of the Tax Cuts & Jobs Act was a supply-side disinflationary shock that boosted service sector productivity, and reversing it will create an inflationary impulse. Ignore the supply-side at your peril.
7/ This week’s note & podcast focus on fiscal and monetary policy, with next week’s employment report likely to play a large role in the policy outlook.…

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