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Investing Specialists

The Next Stimulus Bill Will Need to Bail Out State and Local Governments

As the bill is negotiated, expect some volatility among municipal bonds.

Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Under the most optimistic scenario, the United States lifts restrictions on businesses later this year as we get control of the coronavirus pandemic, gradually reviving the economy. However, even if we manage to contain the virus as well as possible, there is a major economic challenge on the horizon: State and local government budgets are getting pummeled and will need to reduce spending in the third and fourth quarters, leading to a contractionary fiscal policy right as we try to get the economy moving again. Not only will this retrenchment impede our recovery, investors need to be aware that stretched local budgets will also put pressure on the municipal-bond market.