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Release The Long End!
Well, damn.
If you're in the camp that thinks maybe rising inflation pressures are going to put the Fed in a rather precarious situation characterized by having to choose between leaning aggressively hawkish (i.e. withdrawing transparency from the market by effectively revoking market participants' license to co-author the policy script) at the risk of flattening the curve/hiking us into a recession or chancing falling behind by remaining gradualistic at the risk of the curve aggressively bear
This time we may have a much shorter overinvestment period and might go almost directly to the financial crisis period. This could occur if disruptions to specific sectors precipitate a financial crisis. Eliminating the Obamacare individual mandate will cause there to be 13 million less people with health insurance. Uninsured people spend less on health care than those with insurance. Most studies indicate a 25% difference. Thus, fewer insured people will result in less spending on health care than would have been the case otherwise. Other than the direct impact on GDP from lower expenditures, there could be financial distress as some firms in the health care become unable to pay their debts…
There is now a significant possibility that disruptions to specific sectors in the economy could be more important than the pure macroeconomic impacts of the Republican tax bill. The risks of defaults stemming from weakness in the housing-related sectors probably exceeds that of healthcare. The homebuilders were correct in their complaints that most of the tax advantages of home ownership will be eliminated by the Republican tax bill. As the homebuilders pointed out, many more middle and low-income people will no longer itemize since the standard deduction has increased and other deductions will be reduced or eliminated. Additionally, the lower $750,000 limit on mortgage interest deduction for new home purchases reduces tax advantages of home ownership.
Thus, as the homebuilders have argued, only a few relatively wealthy households that still itemize will get any benefit from the $10,000 deduction. For those wealthy households, a $10,000 deduction is not likely to be a major factor when deciding whether to buy a home. The net result could be a significant negative impact on home prices.
Another potential disruption from the Republican tax bill also stems from the limit on deductions for state and local taxes. As with the real estate impact, the impacts on the finances state and local will vary widely for different regions and locations. There are some jurisdictions that will be severely impacted the reduction or eliminations of deductions for state and local taxes. New York and California are the obvious examples.
Disruption caused by the Republican tax bill could result in various degrees of financial distress and defaults that could cause the Federal Reserve set short-term interest rates lower that what markets are now assuming. This would be beneficial for the fixed income markets. The equity market could also initially benefit from the increased inequality, as the growing pool of savings seeks securities to invest in. We do not know how much is already in the market….”
https://seekingalpha.com/article/4134063