First Bermuda Securities Laments Fiscal Stimulus in the Face of Tightening Monetary Policy
13 February, 2023
In the first two years of the U.S.’s Biden Administration nearly $7.0 trillion of fiscal stimulus was legislated to flow into the economy, including $5.0 trillion for pandemic-related relief, $1.2 trillion for infrastructure, and $800 billion for climate and job initiatives. Meanwhile, the U.S. Federal Reserve frantically (behind the scenes) attempts to reign in the economy so as to avoid unbridled inflationary pressure. The lack of coordination between fiscal and monetary policies is economically wasteful and debilitating for businesses and consumers seeking to manage their financial and investment affairs under conditions of growing, not receding uncertainty. In the 1980s addressing high rates of inflation was the chief economic priority of my friend Paul Volker and fiscal conservatism a priority of the Reagan Administration. Together, monetary and fiscal policy tightening succeeded in breaking the back of high inflation. We will need a similarly coordinated effort this time too notwithstanding the wishful seeking to have their cake and eat it too. Look for persistency in mid- to high-level single digit rates of inflation and interest rates owing to fiscal stimulus never really coming into alignment with a need to impair the money supply and spending. Cash will eventually become king and be rewarded at comparatively high rates of compounding interest.
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About First Bermuda Securities Ltd.
First Bermuda Securities Ltd. (“FBS”), an exempted Bermuda company, is a strategic advisory, compliance consulting and listing services firm based in Hamilton, Bermuda. Please contact us or visit our website at www.fbs.bm for additional information. We welcome proposals to engage for mutual benefit and promise a prompt and confidential response.
