Economic data

3 reasons why investors should worry about US inflation

US stimulus set to exceed Federal Reserve's balance sheet

Julius Probst, PhD
April 9, 2021

Here are three reasons why investors should worry about inflation in the US.

First, the Biden administration is set to spend another $3 trillion on a sweeping economic improvement programme after already handing out some $5 trillion in stimulus payments to keep Americans afloat during the pandemic.

Second, the Federal Reserve's balance sheet has swelled to a record $7.5 trillion as the central bank continues buying up debt securities to keep markets functioning.

And third, all this means the amount of cash flooding into the economy is set to exceed the value of assets held by the Fed – which in turn means that investors will have to soak up the additional debt.

So, as inflation rises, investors will need to be compensated, most likely through higher US interest rates.

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