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William Bengen, the creator of the
Why the change of heart? Low inflation.
Bengen’s initial assumptions were that inflation would run close to its historical norm of 3%. But given the ultra-low levels of inflation that prevailed for much of the past decade, his view was that a higher starting withdrawal, combined with smaller annual adjustments thereafter, would likely be sustainable. But he added a caveat: “We won’t know for 30 years, so I can safely say that in an interview.”
Fast forward half a year and the possibility of
higher inflation is a hot topic, thanks to the prospect of a diminished coronavirus, an ascendant economy, and massive amounts of government stimulus.
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I. How much of the $1.9 trillion is spent in fiscal year 2021?
Approximately $1.2 trillion of the $1.9 trillion package, or 63% of the expenditures, will come in fiscal year 2021, ending September 30, as estimated by the non-partisan U.S. Congressional Budget Office (CBO), which is charged with putting a price tag on all Congressional legislation. In fiscal year 2022, another $400 billion will be spent.
The fiscal economic rescue package has many different types of spending programs, and not all proceed at the same pace. Over 90% of the direct payments to individuals ($415 billion) and the increases in unemployment benefits ($242 billion) will hit the US economy in the March-September 2021 period. Also, the business support programs for restaurants ($15 billion), airlines ($25 billion), and various other business support activities ($25 billion) will also arrive in fiscal year 2021. Grants to state and local governments ($350 billion) will occur 100% in the 2021 fiscal year
Why RiverFront is not yet concerned about recent rise in rates
Past performance is no guarantee of future results. Shown for illustrative purposes. Not indicative of RiverFront portfolio performance.
After a prolonged period of hovering near all-time lows, the US 10-year Treasury yield has been on the move lately (see chart). This is not wholly unexpected, nor it is necessarily something for the stock market to be concerned about, in our view. In RiverFront’s 2021 Outlook, both our base case and bull case scenarios for stocks predicted rates rising this year; at the upper end, we predicted a range as high as ~1.80% on the US 10-year Treasury.