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An Economic Wild Card: Could the Medicine Kill the Patient?

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An Economic Wild Card: Could the Medicine Kill the Patient?

Author: Greg Valliere

September 26, 2022

ECONOMIC GROWTH IS SLOWING and the price of oil has plunged below $80 per barrel — so shouldn’t the Federal Reserve ease up? Apparently not; the central bankers are ready to hike rates again, by 75 basis points, when the FOMC meets on Nov. 1-2.

WE REITERATE OUR RANT LAST TUESDAY: The Fed is about to become politicized as Chairman Jerome Powell, who got inflation wrong last year, is now over-reacting. The Fed, it seems, is always behind the curve, fighting the last battle.

INCREDIBLY, POWELL SEEMS TO BE seeking a recession and a housing slump. Democrats fear this could hurt their election prospects, which have slipped a bit in recent days after surging around Labor Day. The slumping financial markets have boosted the GOP’s prospects.

TO BE BLUNT, there’s a growing chance that harsh monetary medicine could kill the patient. A leading proponent of this view is the renowned market guru Jeremy Siegel, who unloaded on the Fed last Friday on CNBC. The Fed, which should have tightened last year, is now tightening too aggressively — making the biggest mistake in its 110-year history, Siegel said.

AFTER KEEPING RATES STEADY as commodity inflation surged last year, the central bankers are now tightening dramatically even though there are clear signs that inflation has peaked. A recession is now likely, Siegel said (the Atlanta Fed’s third quarter GDP forecast is for growth of 0.3%).

SIEGEL SAID THAT to call the Fed’s monetary policy “absolutely poor” would be “an understatement.”

WE’LL GO OUT ON A LIMB and predict that the Fed may react to the market crash and economic softening by easing up a bit, hiking the funds rate by 50 basis points, not 75, at the early November meeting. That could be a relief to the markets.

BUT MORE RATE HIKES are likely into early 2023, as the Fed continues to tighten until achieving its extremely controversial goals: an economic slowdown and a housing slump. Be careful what you wish for . . .


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.

©2023 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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