Welcome to Thoughts on the Market, I'm Michael Zezis, head of U.S. Public Policy Research

and Municipal Strategy for Morgan Stanley, and I'm Matthew Hornbach, global head of macro

strategy.

And on this edition of the podcast, we'll be talking about current debates over fiscal

stimulus and inflation and how fixed income markets may react to potential outcomes.

It's Wednesday, February 10th at 11 a.m. in New York.

So Matt, let's talk a little bit about an economic policy debate that's got a lot of attention

in the media, but maybe isn't getting a lot of attention from markets.

And the debate I'm talking about is one taking place within the economic thought leaders

of the Democratic Party, namely Treasury Secretary Yellen, who's continuing to press the case

for a $1.9 trillion stimulus, and Larry Summers, the former director of the National Economic

Council among many other prior titles.

And he's publicly shown support for the stimulus, but it's also flagging the possibility

that it might be too big and it might touch off inflation in a risky way.

So Matt, one implication of this debate, it might actually influence how Democratic lawmakers

look at the size of this bill.

Now our view is that there's been already enough pressure from moderate Democratic senators

to reduce the size of this bill so it ends up below $1.5 trillion.

But perhaps it begs the question, how important is it to markets that the bill is $1.9 trillion

instead of $1.5 trillion or $1 trillion?

In particular, the bond market, which in our view should be the primary shock absorber

for the stimulus policy.

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