Simply put, the combination of fiscal stimulus and import restrictions could lead to a sizeable boost to growth. The downside to the policy is that it would certainly be inflationary. One of the key elements to containing inflation over the past nearly four decades has been through globalization. Trade impediments shift the aggregate supply curve toward the origin, meaning that price levels are higher at the same level of output. But, in an economy that is struggling to boost price levels, the impact of higher inflation will be benign, at least for a while.
Higher inflation will raise interest rates. We expect monetary policy to remain accommodative in the face of rising inflation due to political pressure on the Federal Reserve. The dollar will likely rally because trade restrictions reduce the global supply of the U.S. currency, driving up the price. The deflationary impact of a stronger dollar will be reduced because of fewer imports, although the imports that do arrive will be cheaper.
We will continue to monitor the progress of policy in the coming months. But, in terms of asset allocation, our committee has started to address these changes and will be reacting in due course.
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This report was prepared by Confluence Investment Management LLC and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change. This is not a solicitation or an offer to buy or sell any security.
 The earlier America First movement, led by Charles Lindbergh just before Pearl Harbor, was designed to keep the U.S. out of a European war.