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Hot hot hot — Inflation Collides With Politics – AGF Perspectives


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THERE ARE TWO DISTINCT AUDIENCES that are having a difficult time with the new inflation data.

THE FIRST is the American public, which — correctly — never believed that inflation was cooling. For a while inflation was rising less rapidly, but even that isn’t the case now, as yesterday’s terrible price news stunned President Biden’s economic advisers, who have a major problem to deal with.

THE SECOND AUDIENCE is officials at the Federal Reserve, who have to revise their timing for rate cuts. Not only is a reduction unlikely at the FOMC session on June 11-12, a rate cut on July 30-31 is far from certain. After that meeting, there’s only one more — on Sept. 17-18 — before the Nov. 5 election.

AS WE WROTE two weeks ago, Fed officials adamantly deny that politics affect their decisions. But a rate cut just before the election would raise eyebrows; the next opportunity for a cut after the election would be at the meeting on Nov. 6-7. It therefore looks to us that there may be only one or two rate cuts before the pre-Christmas session.

IN ADDITION TO HAVING TO REVISE THEIR SCHEDULE, the Fed may have to deal with some internal differences, as Governors Christopher Waller and Raphael Bostic have made it clear that they are in “no rush” to move, and new governor Michelle Bowman says the next move may have to be a rate hike.

THIS INFLATION NEWS COMES AT A BAD TIME for the Biden administration, which has been arguing — disingenuously — that inflation is falling. It isn’t. If inflation stays stubbornly high, the critics — headed by Lawrence Summers — may resume their calls for no rate cuts this year.

WITH THE ATLANTA FED “GDP Now” forecast calling for a solid 2.4% GDP rise this quarter, there isn’t any compelling reason for the Fed to move — unless the stock market plunge offers a reason to cut rates, since falling equities are an unwelcome form of monetary restraint.

PRESIDENT BIDEN SAID YESTERDAY that he’s not sure when the Fed will move, but he urged the central bankers to act. With inflation everywhere — rents, food, insurance, you name it — you have to wonder if Biden realizes how pervasive the inflation fear has become across the country. It could cost him a second term.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

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