“Guns & Butter” May Be Back—and Inflation Could Be the Price

The featured report argues that the current U.S. mix of tax cuts, rising defence spending, and resilient labour markets increasingly resembles the inflationary “Guns & Butter” era of the 1960s. 

• Bernstein suggests today’s policy mix may prove more 1960s-style inflationary than a temporary 1970s oil shock, especially if fiscal stimulus lands into an already healthy labour market.
• He argues that markets may be too comfortable with a backdrop of large tax cuts, expanding deficits, and accelerating military spending.
• In that regime, Janus sees relative merit in shorter-duration assets, value, dividends, higher-quality fixed income, and gold over longer-duration growth exposures.

If the market is still positioned for the old regime, the full note is worth reading for what a more inflation-prone one could mean.