The budget deal will raise federal spending this year by as much as 0.7% of GDP, providing an extra fiscal stimulus to an economy already boosted by the recent tax cuts. While that will mean 2018 is a very strong year for economic growth, it will add to the rebound in inflation already underway. And with the fiscal deficit heading beyond 5% of GDP, it raises the risks that “bond vigilantes” make an unwelcome return.
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