Treasury secretary Janet Yellen said that the President’s infrastructure expenditure plans of $400 billion a year does have inflationary undertones - nothing unexpected.
The caveat here is that she went on to say that a “higher-interest-rate” environment would actually be more beneficial to the Fed and the economy.
There is some truth to Yellen’s words - in an overheated economy like this, we should tread carefully, although the million-dollar question remains - how will the markets react to this whisper?
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The Fed is also planning to slowly sell the corporate bonds and fixed income instruments it bought last year in its bid to curb the pandemic related economic slowdown. A sell off by the Fed on its own, would cause interest rates to rise. This would increase the cost of debt for most companies. An infrastructure package in a situation like this would help mitigate the impact that the rising interest rate would have on private investments. However, the bears are gonna have a filed day with companies that are not part of the package, that is for sure.
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