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A spike in prices could change everything for Wall Street

February 23, 2021. Summarized by summa-bot.

Compression ratio: 25.4%. 2 min read.

Wall Street is increasingly concerned that a wave of spending when the economy reopens could cause prices to spike, spoiling the financial market party that's been raging since last March.

London (CNN Business)Wall Street is increasingly concerned that a wave of spending when the economy reopens could cause prices to spike, spoiling the financial market party that's been raging since last March.

European Central Bank President Christine Lagarde said Monday that her institution is "closely monitoring" longer-term bond yields, emphasizing that "banks use those yields as a reference when setting the price of their loans to households and firms. "

"We expect central banks to lean against any market concerns around rising debt levels and to keep interest rates low for now," Boivin said.

"If the narrative on high debt levels, combined with rising inflation, were to change, it could eventually undermine the markets' faith in the low-rate regime — with implications across asset classes," Boivin noted.

Coming up: Federal Reserve Chair Jerome Powell is all but certain to be pressed on what's happening with bonds, as well as how rising inflation could affect the Fed's plans, when he testifies before Congress on Tuesday and Wednesday.

The White House told CNN Business that a financial transaction tax on GameStop-like trading deserves additional study and can be part of a greater evaluation of such a tax for revenue and market stability.

A 0. 1% tax on stock, bond and derivative transactions could raise $777 billion for the federal government over a decade, according to a 2018 estimate by the nonpartisan Congressional Budget Office.

"The odds are still against a financial transaction tax being enacted, but for the first time in a decade this proposal should be considered as a viable policy option rather than just another talking point," said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

Watch this space: Last week, House Financial Services Chair Maxine Waters said she's "very interested" and "certainly looking at" a financial transaction tax.

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