A couple of economists reckon that the US Federal Reserve could start tapering, which in layman’s terms is a gradual withdrawal of monetary stimulus, a lot sooner than investors expect. They think that 10-year Treasury yields could approach 2% by the end of 2021.
That would be a near doubling of the risk-free rate of return, which is currently around 1.1%.
The pair of economists said: “If you give people money, they are going to find a way to spend it”. They added that although the US economy lost steam towards the end of 2020, the “negative momentum” will reverse by February.
They also think the US economy will get another fiscal boost of “a trillion on top of a trillion”, given that the Democrats will soon not only control the Lower House, but the Senate and The White House, too.
The fact that the Fed cannot continue to print money willy-nilly is a given....