| Inflation and interest rates: the 10-year forward interest rate over a 1-year horizon is 2.03% as of May 12, 2021 and expected inflation is ~1.6%, which is lower than the Fed’s 2.0% target | COVID-19 recovery: US consumer spending may surpass available supply, which would be extraordinary. The latest CPI through May 12, 2021 has increased to 0.8%, which is the largest 12-month increase since September 2008 |
| Stable current market volatility: interest rate volatility implied in derivative prices has been stable; the probability that 10-year Treasury rates will increase by 100bps is estimated to be less than 5% | Legislative stimulus: the President’s $1.9 trillion financial stimulus and $3 trillion infrastructure development plans are the largest in history |
| Expansionary monetary policy: the Fed has reduced its target benchmark rate to the historically low level of between 0% and 0.25% and will continue to buy at least $120 billion of bonds each month until the recovery is complete | Restricted monetary levers: the Fed could be forced to taper open market operations at some point due to the volume of debt held ($7.7 trillion) |
| Unemployment rate: the unemployment rate is in a relatively high range of 6% (Bureau of labor statistics as of March 2021), reducing pressure on wage increases | Aging workforce: demographically dominant baby-boomers are entering normal retirement age, with some accelerating plans due to COVID-19; the net impact may be a labor shortage |
