by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
January 13, 2022
THE BLAME GAME: One of Washington’s least attractive habits is to find a scapegoat when things go wrong. The finger-pointing is in overdrive as inflation rages, and the most likely victim is Joe Biden’s Build Back Better bill.
BIDEN’S JOB APPROVAL RATING plunged to a shocking 33% positive yesterday in the new Quinnipiac poll — as everyone scrambled to assign blame:
Could it be greedy corporations that have jacked up prices? That’s one of the populist narratives, which has not gained much traction.
Could it be the Federal Reserve’s sanguine view of inflation last spring and summer, which left the central bankers behind the curve? That’s clearly a factor.
Could it be supply chain disruptions? No question, and recent reports from Asia indicate that a significant turnaround is not imminent.
Could it be that the worst pandemic in 100 years has scrambled the economy? Yes, but there were warnings from Larry Summers and others that inflation would explode.
Could it be that Washington’s fiscal policy response was excessive? Republicans are adamant that trillions of dollars in new spending has ignited inflation — and voters seem to agree.
EVEN IF INFLATION LEVELS OFF BY SUMMER, history shows that public attitudes are locked in by then, months ahead of an election. And on that front, the outlook continues to worsen for Biden — the GOP needs only a net gain of five seats to recapture the House and we think they will gain 15 to 20 seats — and we’re on the low side.
THE MAIN CASUALTY: In an economy this hot, does it make sense to spend another $2 trillion on social programs? Sen. Joe Manchin has led the fight to kill or alter the Build Back Better legislation; yesterday’s inflation data simply reinforced his argument.
WE TALKED A WEEK AGO with a Manchin ally who thought he could compromise on key issues in the BBB bill, but chances have slipped dramatically since then. A good friend says it’s now the Build Back Never bill, and it’s hard to disagree with that sentiment, as more spending falls out of favor.
WHAT A PIVOT !! So we’ll go from extraordinary monetary and fiscal stimulus to cold turkey — higher interest rates and an anti-deficit mood in Congress. Some respected economists like Stuart Hoffman tell us that this shift will begin to cool inflation by later this year — we agree, but the ride between now and then could be exceedingly bumpy.
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This post was first published at the AGF Perspectives Blog.
