Economic Outlook – Fall 2021 | “A Beautiful Day in the Neighborhood” 

Fall is one of my favorite times of the year. The leaves change color, it is football season, and the temperature cools. Some people would describe it as ‘sweater weather’; and no one rocked a sweater better than Fred Rogers. Mr. Rogers made a lasting mark on an entire generation by coming onto our televisions through his front door, changing from his blazer and work shoes into a cardigan and house shoes, and then telling us about ways we could use our imagination or deal with our feelings. I think we have all had a time or two these last couple of years where we have needed to deal with feelings.

While the world has wrestled with the effects, both direct and indirect, of the lasting pandemic, the economy has shown an amazing resiliency. With help from the federal government in 2020 in the form of cash handouts, increased unemployment benefits, and PPP loans to businesses, the recession was short, and the recovery was sharp.  People are eager to get back out and spend money. Now we are beginning to hear concerns of the economy overheating with inflation rising, more so than we do about falling back into recession.

These are the three major concerns for the economy as we head toward the end of the year.


When inflation numbers started ticking higher at the beginning of the year the Fed famously said that it was “transitory”. They explained that there were specific issues that caused prices to increase in some sectors of the economy but that those would work themselves out and prices would level off. What we have seen instead is that each of those instances has had knock-on effects that continue to work through the economy and those high inflation numbers have persisted and appeared likely to remain elevated through the end of the year.

Figure 1: Source:

If inflation continues to get hotter, it could prompt the Fed to tighten monetary policy ahead of schedule.  As we saw in 2013, financial markets do not like it when the Fed tries to take away easy money sooner than they are ready. That is why Jerome Powell, the Chair of the Federal Reserve, has been so careful about communicating the Fed’s intentions. They plan to reduce bond-buying gradually over the next 12-18 months and expect the first-rate hike sometime in 2023.

Virus Variants

The end of the pandemic has been delayed by the Delta variant of the coronavirus. However, there is now renewed hope that we are getting closer to going back to “normal”. While vaccinated individuals have been reported to contract and spread the virus, we know that those reported cases are much less severe than unvaccinated individuals – being much less likely to result in hospitalization or death. Also, Merck just announced the successful third trial test of a pill that has been shown to reduce symptoms of patients that have contracted the virus.

The good news is that a huge percentage of the population has immune system resistance due to either being vaccinated, previously infected, or both. With the availability of medication effective in alleviating symptoms in cases, we could be getting close to returning to “normal”. However, we will still have the risk of another variant of the virus coming online that dodges immunity or proves resistant to medication.


The last major question mark heading into the end of the year is tax policy. The House Ways and Means Committee released a 12-page summary of their proposals titled “Responsibly Funding Our Priorities” which outlines the proposed changes to our current tax policy. These proposals include increasing corporate tax rates, eliminating the back-door Roth contribution, increasing the capital gains tax rate, and adding a surtax to incomes over $5m.

These proposals are all still hypothetical at this point as they still face major hurdles to get passed.  However, we estimate that if they did all get passed in full it could result in a drag on economic activity.  Our base case right now is that a watered-down version of this proposal will get passed and the drag on the economy will not be enough to offset the continued increase from the cyclical reopening.

Bottom Line

So where do we go from here? As I write, the debt-ceiling is being debated and looks like it will be pushed back to December to buy more time. The tax proposal still has a long way to go before any of it becomes official.  Health officials are encouraged by cases and hospitalizations dropping in the United States but are worried about what another winter season could bring.

We believe the odds lean towards the economy continuing to accelerate and supply chain disruptions making price pressures persistent well into the next year. To that end, we have reduced our interest rate risk in fixed-income portfolios. On the stock side, we continue to tilt towards value overgrowth due to the expectation that rising rates may push some bond investors to dividend-paying companies. As always, we will keep our eyes open for developments and act accordingly.


Just like fall is a season of transition, our country is going through transition and it has been difficult for a lot of people. I hear it from our schools, our community leaders, and friends – people are hurting. “Covid Stress” is a real thing. We do well to practice patience and care; with our loved ones and strangers alike.

Our take in the Trust and Wealth Management Department, where we serve the financial and investment needs of our neighborhoods, is to concentrate on providing the best possible service and advice we can. Transition periods, like retirement or the passing of loved ones, can be very stressful and we do our best to alleviate some of the stress associated with the difficult financial decisions that these scenarios create.  This hopefully allows our clients – our friends and neighbors – the opportunity to focus on the things that matter.

Personally, I feel we could all benefit from a little more Fred Rogers.  If you need an emotional pick-me-up just go Google “Fred Rogers testimony to Congress” or click this link.  Despite our challenges, it really is a beautiful day in this Northern Illinois neighborhood.

Thank you for reading and thank you for being a good neighbor.

Keith J. Akre, CFA, CFP® – Vice President & Trust Officer

Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.