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A Crucial Week Ahead as the Fed Considers a 75 bp Move

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Insights and Market Perspectives

A Crucial Week Ahead as the Fed Considers a 75 bp Move

Author: Greg Valliere

June 13, 2022

SO MANY BLOCKBUSTERS THIS WEEK: the Jan. 6 committee going for the jugular; a gun reform bill finally moving; an Iranian nuclear deal apparently dead, etc. But the big story is the Washington panic over inflation, which may lead the Federal Reserve to consider more aggressive tightening.

THE GASOLINE PRICE SPIKE has rocked the political world, as inflation becomes an issue that almost certainly will lead to a GOP tidal wave on Nov. 8. The reeling Biden Administration has no answers; the president has accepted no blame, instead blasting energy and shipping firms late last week.

THE INCREASINGLY ANGRY PRESIDENT said this in Los Angeles on Friday after learning about shipping industry profits: “Every once in a while, something you learn makes you viscerally angry — like, if you had the person in front of you, you’d want to pop them. No, I mean that.”

THE NEW YORK TIMES reported this weekend that Democrats increasingly believe that Biden should not run for re-election in 2024 (as we have asserted consistently). We’ll go even further — there’s a growing concern that Biden may not be capable of serving the rest of this term, two and a half long years to go.

BIDEN IS ON THE VERGE of winning a modest gun reform bill, which omits curbs on assault weapons, but any victory would be welcome at the White House. In need of a villain to target, the administration has a big one: Donald Trump, as a criminal referral to the Justice Department looks increasingly likely; the Jan. 6 committee will continue to exceed expectations today.

BUT WE REITERATE that the gasoline price spike is without political precedent in the past four decades, almost certain to cost Biden control of the House and possibly the Senate as well.

THERE’S A GROWING NEED TO CONVINCE THE FINANCIAL MARKETS that inflation will subside, so the White House is counting on the Federal Reserve to take strong action. We think a 75 basis point hike — either this week or more likely in late July — is now on the table.

THE MARKETS MAY NEED TO SEE A “SHOCK AND AWE” move by the Fed, where some officials — led by Fed St. Louis Fed President James Bullard — want to impose harsh medicine. We don’t think Bullard will have the votes this week, but we’ll carefully listen to Jerome Powell’s press conference on Wednesday; could Powell hint that a 75 bp move is possible at the late July meeting?

AS IF BIDEN DOESN’T HAVE ENOUGH ECONOMIC HEADACHES, there’s fresh gloom on geopolitics. An Iranian nuclear deal appears dead, as officials in Tehran have shut down cameras in its nuclear facilities, a sign that they will not comply with any restrictions. And a lack of ammunition has kept Ukrainian troops on their heels for the past few weeks.

BOTTOM LINE: This gloomy outlook is missing one key ingredient — a recession, which still doesn’t appear to be imminent this year. But by 2023 the absence of robust monetary and fiscal stimulus will become apparent; the annual budget deficit is about to plunge from about $3 trillion last year to about $1 trillion this year, an astonishing decline that makes us nervous about a stimulus-starved economy in 2023.


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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