Blame Game on Inflation Grips Washington; Spending Loses Support

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.


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

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.

©2022 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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