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Homeus economyShift in U.S. spending emphasis ‘almost the end of Reaganomics,’ strategist says

Shift in U.S. spending emphasis ‘almost the end of Reaganomics,’ strategist says

  • Last week, President Biden signed a $1.9 trillion relief bill delivering $1,400 stimulus checks to individuals in around 159 million households.
  • Stock markets have been volatile in recent weeks as bond yields rose alongside expectations for higher inflation, sparking concerns that central banks could begin to unwind some of the stimulus measures currently in place.

U.S. President Joe Biden attends an event where he announced administration plans to double its order of the single-shot Johnson & Johnson coronavirus vaccine, procuring an additional 100 million doses, in the South Court Auditorium at the White House in Washington, March 10, 2021.Tom Brenner | Reuters

The change in emphasis for fiscal stimulus in the U.S. under President Joe Biden has effectively signaled "the end of Reaganomics," according to Embark Group CIO Peter Toogood.

The government and the Federal Reserve have deployed unprecedented levels of support over the past year as they look to guide the economy out of the coronavirus crisis.

Last week, Biden signed a $1.9 trillion relief bill delivering $1,400 stimulus checks to individuals in around 159 million households. Meanwhile, the Fed has committed to continuing its loose monetary policy, signaling a willingness to overshoot its 2% inflation target if necessary.

Stock markets have been volatile in recent weeks as bond yields rose alongside expectations for higher inflation, sparking concerns that central banks could begin to unwind some of the stimulus measures currently in place.

Equity investors have rotated toward more cyclical stocks, those likely to benefit from the economic recovery, while pandemic winners such as the technology sector have lagged.

Toogood told CNBC's "Squawk Box Europe" on Monday that the market is reacting logically in anticipating "the big underlying change" in U.S. spending.

"We have got massive pent up savings, we have given away and have engineered particularly in the U.S. but elsewhere as well, the most amazing fiscal and monetary stimulus — unparalleled — and then we have 25% money supply growth which is the first time we have really had that since the 80s," Toogood said.

Expectations that the money velocity in the U.S. will increase, following promises from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen to "go big," mean markets are adapting to a new goal of a "massive increase in nominal GDP," he suggested.

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