The biggest threat to the global equity and fixed income asset classes is a steep inflationary kick in the US. Such a move would likely force the Fed to hike interest rates faster than the market currently expects.

With interest rates near zero, many governments, businesses, and consumers have borrowed excessively over the last decade – rising rates would make it much harder for them to service their debt, increasing the risk of defaults.

Many worry that President Biden’s $1,9 trillion fiscal package – which puts money directly into the consumers’ pockets – will be the catalyst for higher inflation, especially once the threat of covid-19 fully subsides. One of the strong counterarguments is that consumers tend to save once-off windfalls, and that sustainable inflation only comes from corporate capital expenditure, which we are not seeing in this cycle.

“Donald Trump’s 2017 tax cuts were worth about $1.5tn, similar in size to Biden’s proposed income subsidies. Although these tax cuts were “permanent” and aimed at boosting corporate investment and consumer spending, they did little to lift long-term GDP or inflation.”

Chen Zhao, Chief Global Strategist, Alpine Macro

Read more here The inflation risk from Joe Bidens stimulus plan is exaggerated