Session recordingGeopolitics

The US stock market has returned to its previous highs. But has the economy  been pushed beyond breaking point in the process? What is the economic reality that investors are facing? Do the next two decades of U.S. growth look like Japan with slow, prolonged stagnation, and can monetary policy or fiscal policy change that?

Speaker:

Nathan Sheets, Chief economist and head of global macroeconomic research, PGIM Fixed Income

Moderator: Alex Proimos, Head of institutional content, Investment Magazine

Key Takeaways

  • Markets are looking through macro-economic uncertainties to the “other side of the pandemic” where the economy is going to be in reasonable shape, says Nathan Sheets, chief economist and head of global macroeconomic research at global active fixed income manager PGIM Fixed Income.
  • Central banks had been active not only in supporting markets but in creating an “implied backstop” where markets believe central banks will respond with greater support if there is another market shock.
  • But the macro economic environment after the pandemic is likely to be challenging, and central banks will struggle to incentivise stronger growth in the medium term.
  • When asked what he saw as the biggest risk for inflation, Sheets said he believed low inflation would be one of the key characteristics of the challenging macro economic environment that lies ahead, due largely to the ageing population leading to weaker aggregate demand.
  • In a low rate world, the global search for yield would push investors to “reach a little bit more out of the credit curve and take on a bit more risk”, he said.
  • When asked whether he thought Jerome Powell would be retained as chair of the Federal Reserve, Sheets said he would “put a coin flip on it.”
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