by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
November 24, 2020
THE REMARKABLE JANET YELLEN will easily win Senate confirmation as the next Treasury Secretary, but she will quickly encounter an old mantra from Republicans — deficit spending must be curbed.
YELLEN IS A MONETARY DOVE, and she won’t be reluctant to spend more money if the economy hits a soft patch in the first quarter. But the Democrats’ limp performance in House and Senate races has greatly diminished chances for a massive new pandemic spending bill.
GET WHAT YOU CAN: Democrats are increasingly resigned to getting only a modest stimulus bill — no more than $1 trillion — in the lame duck session. As we wrote yesterday, there’s a decent chance of enacting a bill before Christmas that would deal with the basics: the need to extend unemployment aid, support small businesses, etc.
A CONSENSUS SEEMS TO BE FORMING among Congressional Democrats — take what you can get now, then perhaps shoot for more after Joe Biden’s inauguration if the economy needs help before vaccines arrive.
BUT EVEN IF DEMOCRATS TAKE THE SENATE in a 50-50 tie after the Jan. 5 Georgia runoffs, the party may have to grapple with two moderates: Joe Manchin of West Virginia and Jon Tester of Montana. They will have enormous clout and they surely won’t support a massive stimulus bill.
WE’RE HEARING THAT BIDEN’S ADVISERS are telling him to take a modest package, which can pass in December with support from some Republican Senators such as Susan Collins. At some time after Thanksgiving, Biden will meet with Mitch McConnell; both are prepared to deal and we think they will get enough to keep the economy afloat this winter.
IF THE ECONOMY BEGINS TO HEAT UP by spring, the Republicans will then intensify their opposition to new spending — even though they were silent as Trump embraced huge tax cuts and new deficit spending. If Republicans retain the Senate — which is the most likely scenario — new spending will fall out of favor.
YELLEN AND JEROME POWELL will be on the same page, attempting to reverse Treasury Secretary Steve Mnuchin’s curbs on Fed lending facilities. Monetary policy will remain extraordinarily simulative, and Yellen would work closely with Powell if there’s a need for more stimulus. McConnell will be the key; he’ll embrace some stimulus, but not much.
YELLEN IS ENORMOUSLY POPULAR within the Fed, and her Keynesian view of government has widespread support among Democrats. But she will have detractors — especially the Wall Street Journal editorial page — who will want her to take away the monetary and fiscal punch bowl.
IT’S NOT TIME TO REJECT MORE MEDICINE: More fiscal stimulus is coming, but by spring an anti-spending stance will dominate the GOP rhetoric. Yellen is a brilliant and unflappable economist, but can she navigate the shark-infested political waters as spending falls out of favor?
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.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2020 AGF Management Limited. All rights reserved.
This post was first published at the AGF Perspectives Blog.
