April 8, 2021 | The growing push-back against the Biden infrastructure plan and trillions more in deficit spending comes as the US economy is recovering by leaps and bounds. The mere fact of vaccination, effective or no, is probably worth several points of GDP simply by improving the national mood. The positive impact on consumers and some parts of the economy is massive and ongoing, even as other sectors struggle with deflation.
In many respects, it is April 2020 all-over-again. The FOMC bought us a year in the housing market with QE and low rates. Now we are back to square one with weak or even negative lending and bond issuance volumes. In terms of the economy, residential housing is not the problem. The low default rates in most 1-4s other than the government-insured sector suggest there is no credit issue in housing. The Fed is focused on employment and other sectors of the economy, but the bias remains deflationary outside of the overheated equity markets.