Charles Lieberman, Columnist

Untimely Fiscal Stimulus Is a Bond Nightmare

The tax-cut package could boost inflation, prompting faster rate hikes by the Fed.

December 5, 2017 at 4:35 PM UTC

Charles Lieberman is chief investment officer and founding member at Advisors Capital Management LLC. He may have a stake in the areas he writes about.

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Policy makers at the Federal Reserve disagree as they try to sort through the case for interest rate hikes. Some think that an increase should be deferred until the inflation rate resumes moving toward the 2 percent target; others remain comfortable with gradual raises in anticipation that the tightening labor market will increase inflation pressures.

The new complication is the increased likelihood of a fiscal stimulus package that reinforces growth. Investors still assume rates will rise only very gradually, as indicated by long-term yields in the bond market. These uncertainties and contradictory views may soon be resolved because inflation is likely to accelerate and that could be reinforced by an untimely fiscal stimulus.