by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
August 25, 2020
A VERY IMPORTANT SPEECH ON THURSDAY: Federal Reserve Chairman Jerome Powell, speaking virtually at the Jackson Hole Fed conference, is expected to detail a much more relaxed policy on inflation.
OUR FRIEND JEFF COX at CNBC writes that the central bankers have agreed on a major new policy of “average inflation” which will allow inflation to run above its 2% goal after periods in which inflation runs lower than that target.
THIS IS THE CULMINATION of a year-long process in which the central bankers traveled the country, talking to the public — not just business leaders — on policy. The consensus is that the previous inflation target was too rigid and that an “inflation overshoot” is warranted.
WANTING HIGHER INFLATION AND GETTING IT are two different issues, of course. It goes without saying that the Fed wants to keep the funds rate close to zero for at least another two years, with more Fed lending to businesses, states and cities that may compensate for the disappointing gridlock this summer on fiscal stimulus.
WITH THE FED PROCLAIMING its desire for higher inflation, the astonishing stock rally could have more legs. Whether this Fed stance leads to a bubble in stocks and housing apparently doesn’t worry the central bankers. Be careful what you wish for, we say.
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POLITICAL CONVENTIONS RALLY THE BASE, and last night’s red meat rhetoric against Democrats certainly will fire up the Republican faithful. But was there anything last night that will persuade moderate swing voters?
WE REITERATE: The key to this election is college educated women, most of whom do not believe the Democrats want to destroy the country, as virtually every speaker asserted last night. Running against the status quo is difficult for the party that controls the White House, and Donald Trump’s handling of Covid-19 doesn’t help.
IT’S TRUMP’S SHOW, and making it all about him is risky, because those college-educated women don’t like him. But Trump has a potent argument that could work for the GOP — Joe Biden wants to raise individual taxes, corporate taxes, estate taxes, capital gains taxes, Wall Street transaction taxes, etc. These tax hikes aren’t only on “the rich” because businesses will pass on higher taxes to consumers.
IT’S WAY TOO EARLY TO COUNT TRUMP OUT — that may be the theme by Friday morning — especially as an important indicator begins to turn. The odds on betting sites, published daily by Real Clear Politics, shows Biden has slipped by nearly 10 points in the past month. Biden is still the favorite, but he’s hardly a sure bet if Trump makes a persuasive argument against higher taxes.
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THE DOG DAYS OF AUGUST: We’ll publish sporadically between now and Labor Day; we don’t plan to write every morning.
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This post was first published at the AGF Perspectives Blog.
