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Could a growth setback be the surprise scenario for U.S. markets? [Video]

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The U.S. Federal Reserve, chaired by Jerome Powell, increased its forecast for the rate at which the U.S. economy would expand this year to 7 per cent from 6.5 per cent last week. REUTERS/Joshua Roberts/File Photo

Joshua Roberts/Reuters

When one type of macro financial risk occupies the attention of investors, it leaves them at the mercy of being blindsided by something else.

A stubbornly higher pace of inflation and much higher interest rates are seen widely as a likely legacy of the enormous stimulus by central banks and governments in response to the COVID-19 pandemic.

But what if the outcome turns out to be a less discussed and very undesirable scenario – a less impressive recovery once pandemic stimulus fades that leaves a burden of debt hanging like a dead weight on the economy?

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This scenario no doubt strikes some as remote given the scale of the rebound in economic activity unfolding …