Goldman: 4 Reasons to Overweight U.S. Stocks, Downplay Inflation Worries

"Interest expense as a percent of GDP has been declining steadily and the number is projected to be around 1.3% and then down to 1.2% by 2023," she said. "The numbers are very low … because interest rates are so low" and "the interest expense burden is similar to what it was in the 1960s."

She also noted that there is evidence that Washington can deal with a growing debt trajectory before it reaches a tipping point, referencing the Budget Control Act of 2011, which raised the debt ceiling but cut spending, and the American Taxpayer Relief Act and Budget Control Act of 2012, which raised income taxes on individuals earning more than $400,000 (and couples above $450,000) but made permanent previous tax cuts for those earning less than those thresholds.

(The $1.5 trillion tax overhaul of 2017 undid the increase in the top marginal tax rate from 2012 and lowered other marginal tax rates but ended other deductions and exemptions and added to the deficit.)

3. Muted Inflation Outlook 

Mossavar-Rahmani is not worried about rising inflation and not just because of the limited costs to service the U.S. debt. There are disinflationary impulses coming from China, "a major exporter of disinflation," which is now joined by other Asian nations including Vietnam, Indonesia, Thailand and Cambodia, she said, adding that all put price pressures on U.S. companies.

Mossavar-Rahmani also doesn't see where U.S. inflation will rise much from domestic sources  — from labor (there are still millions unemployed because of the pandemic) or from excessive consumer demand chasing too few goods. The savings rate, which was high before the pandemic, has risen even higher — to 13.7% in December, according to the Federal Reserve Bank of St. Louis.

Mossavar-Rahmani says the core Consumer Price Index (CPI) and core Personal Consumption Expenditures (PCE) — both exclude food and energy — could top 2.5% this spring because they will be compared to extremely depressed levels from last year, but that also isn't much of a problem. "Fed Chairman Powell has already said it is transitory and they will look beyond that," she says.

4. Low Interest Rates

The Fed has indicated it will likely keep the short-term federal funds rate in its current range between 0 and 0.25% for the next three years, which limits how high other rates can go, said Mossavar-Rahmani, explaining her outlook for interest rate constraint.

She expects the 10-year Treasury yield will range between 1% and 1.5% this year. The yield has been rising steadily since late January on expectations for stronger growth due to coronavirus vaccine distribution and for another large economic relief package. As of Friday's close, the 10-year Treasury was yielding 1.16%, its highest yield since March 2020, just before the pandemic shut down the U.S. and global economy.

— Related on ThinkAdvisor:

• How Goldman Sachs Is Getting Cozy With Main Street Investors and Their Money
• GMO's Inker: How to Escape the Growing Stock Bubble