The Fed Fiasco and the Damage Done; Tentative Talks on Debt Ceiling

by Greg Valliere, AGF Management Ltd.

BEFORE HE LEAVES FOR NANTUCKET on Tuesday evening, President Biden is expected to announce his decision on the Fed Chairmanship, ending a dysfunctional vetting process that has bruised both Jerome Powell and, surprisingly, Janet Yellen.

FOR POWELL, this process has sent a message that Biden doesn’t have a lot of confidence in the current Chairman, who is way, way behind the curve on inflation — and has been wrong since last spring, when Powell was sanguine about the threat of persistently higher prices. Biden’s indecision seems to be sending a signal that he isn’t satisfied with what he has now at the Fed.

THIS PUTS TREASURY SECRETARY YELLEN in an awkward spot. She urged Biden to re-nominate Powell several weeks ago, and the president has not complied. Yellen undoubtedly could live with the other candidate, Lael Brainard, but Biden has signaled, in effect, that he doesn’t have confidence in Yellen’s judgment on Powell.

IN THE FINAL ANALYSIS, it’s about which candidate can most easily win Senate confirmation, and on that score, Powell is the obvious pick; he would comfortably sail through. But the message from Biden will be terribly lukewarm — I’ll pick Powell because he can win confirmation, not necessarily because he’s the best pick.

IF BIDEN CAPUTILATES, ONCE AGAIN, to the Progressive left and picks Brainard as Fed Chair, it will ignite still another fight within the party, which desperately needs to show unity ahead of bruising elections next year.

* * * * *

TENTATIVE TALKS ON DEBT CEILING: Congress is out of town, set to return from Thanksgiving recess next week to resume debating the Big Four issues:

1. The defense spending bill, likely to win enactment in early December, perhaps with an anti-China “competitiveness” provision to boost funding for U.S. manufacturers.

2. Keeping the government open, which will necessitate another stop-gap measure when the current deadline expires on Dec. 3. This could drag into 2022.

3. The social spending bill, which will take weeks to resolve in the Senate, after House passage last Friday. This also could drag into next year, amid endless speculation about what Sen. Joe Manchin is willing to accept on spending and taxes.

4. Hiking the debt ceiling, a serious issue, which has prompted initial talks between Chuck Schumer and Mitch McConnell. They’ll reach a last-minute compromise — or approve another extension, also until next year. The threat of a government default is exaggerated.

* * * * *

COVID, STILL WITH US: The U.S. economy looks surprisingly solid, and the Wall Street Journal reports this morning that supply chain bottlenecks may be easing. But Covid is still taking a terrible toll in the U.S. and Western Europe, where vaccine protests are raging. Bond yields may stay remarkably low until the Covid crisis abates, which doesn’t seem to be imminent.



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.

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

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This post was first published at the AGF Perspectives Blog.

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