Welcome to Dysfunctional December

by Greg Valliere, AGF Management Ltd.

NOTHING HIGHLIGHTS the ineptitude in Washington like the month of December, as lawmakers frantically attempt to compensate for a year’s worth of inaction on budget issues. This dysfunctional December will be no exception.

LET’S START WITH THE FEDERAL RESERVE, which has belatedly discovered the inflation threat that Chairman Jerome Powell underestimated during the spring and summer. He undoubtedly suspects that Friday’s jobs report will be red-hot, and wants to alert the markets that the Fed understands the threat of over-heating.

SPEEDING UP THE TIMETABLE for ending Fed asset purchases has been likely for the past few weeks; it wasn’t a surprise yesterday, in our opinion, that Powell telegraphed a late spring rate hike. The surprise is that the omicron variant could cool the economy, which the bond market may be signaling.

SO FED POLICY MAY NOT BE CLEAR until the Dec. 14-15 FOMC meeting, which will coincide with reports the scientists, also due by the middle of this month — a major uncertainty for the volatile markets. And now there’s uncertainty on Capitol Hill.

A SIMPLE EXTENTION OF FEDERAL SPENDING, keeping the government open when the deadline expires at midnight this Friday, has seemed like a safe bet. But members of both parties raised objections yesterday on issues ranging from the length of the next extension to spending levels heading into 2022.

WE TALKED WITH SOURCES YESTERDAY who aren’t ruling out a brief government shutdown this weekend into early next week, before a deal that extends funding well into the winter. Not a huge story for the markets, although it’s a warning signal of even bigger fights that lie ahead.

THE JAN. 20 STATE OF THE UNION ADDRESS could become the new deadline to finish work on President Biden’s Build Back Better bill, and perhaps even for resolution of the debt ceiling extension.

A SHAKY PREMISE: All the upcoming votes — from the FOMC and Congress — depend on the hope that the omicron variant will be contained and treatable, with only a modest impact on the economy, which seems to be the market consensus. If there’s evidence to the contrary, all bets are off.

* * * * *

A TRIAL BALLOON: Biden Administration officials have floated the name of a progressive ally of Sen. Elizabeth Warren to become the Federal Reserve’s top banking regulator. Richard Cordray, who previously served as head of the Consumer Financial Protection Bureau, would be quite a consolation prize for the left, which wanted Lael Brainard to become the next Fed Chair.

CORDRAY WOULD FACE STIFF OPPOSITION in a confirmation hearing; Louisiana Sen. John Kennedy (R) said yesterday that Cordray is “to the left of Lenin.” Another left-wing nominee, Cornell professor Saule Omarova, is unlikely to win confirmation as Comptroller of the Currency.




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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