Senior US economic bloc officials promise tax breaks for the middle class. In the case of the implementation of this tax reform, the middle class will have more money left in their hands, which should raise the level of consumption in the country. In theory, this should lead to higher inflation. But for some reason, the Treasure market did not react to this at all.
It is clear that yields on short government bonds are in place, because are under the full control of the Fed because of the QE program, which launched in October. But why then didn’t yield increase on long government bonds?
There may be some explanation for this – either there will be no tax reform at all, or the amount of exemptions will be too small to raise inflation, or the third option is that large capital continues to wait for the end of this business cycle, and therefore they will not sell long Treasuries. It is too early to say which of the options is the most plausible. We will wait for new details on this reform. It may sound strange, but tax reform in the USA can have a strong impact on the dynamics of emerging markets, including the Russian one.