Joe Biden’s Three Constituencies; the Fed Nears a Decision
Author: Greg Valliere
August 17, 2021
YESTERDAY’S SPEECH BY PRESIDENT BIDEN reinforced our belief that there are sound reasons for leaving Afghanistan — but the exit was appallingly inept. So what’s the impact on Joe Biden’s presidency? He has three constituencies, two of which are scathing:
1. The global criticism has been withering, as allies like Germany complain that they were not consulted; an Afghan migration crisis will worsen in much of Europe. And adversaries like China and Russia see an opportunity — they already have reached out to the Taliban.
The great geopolitical concern is that al Qaeda becomes a major force once again, focused on destabilizing Pakistan, which has over 100 nuclear weapons. Even if just one or two nuclear weapons slip out of Pakistan, that could make this week’s crisis look tame by comparison.
2. The Washington establishment, which is aghast after this week’s debacle, will become a major problem for Biden. All Republicans and some Democrats will demand hearings and more hearings; Secretary of State Anthony Blinken and national security adviser Jake Sullivan will become piñatas, their influence diminished. Biden’s political capital also will diminish.
3. The American public is the third major constituency, the audience Biden clearly was speaking to yesterday. The public has been strongly opposed to the 20-year war. Biden undoubtedly is betting that the public won’t focus on Afghanistan, but that’s because they’re more concerned over booster shots, inflation, urban crime, etc.
BOTTOM LINE: Of three Biden constituencies, two clearly are angry and the third has other issues that won’t help him. Republican prospects in the 2022 election have improved; if the focus in the next year is on atrocities in Afghanistan, especially toward women, Biden will lose the House and Senate.
* * * * *
THE BIG WASHINGTON STORY FOR MARKETS is the path of Fed policy, which is now coming into focus. Ahead of the Aug. 26-28 Jackson Hole conference, it appears that the central bankers have reached a consensus on taping of asset purchases, according to a piece this morning by Nick Timiraos in the Wall Street Journal.
THERE’S GROWING AGREEMENT within the Fed that asset purchases will be tapered this fall, with an announcement coming at the Sept. 21-22 FOMC meeting. The actual taper would begin later in the fall, perhaps ending by next summer. If the labor market continues to move toward full employment, the door would be wide open for a rate hike by late fall of 2022.
THERE WILL BE PLENTY OF CAVEATS: They include the Covid variant, which still hasn’t peaked and probably will require booster shots; slowing economic growth in China; and uncertainty over the next infrastructure bills. These and other factors could prompt the Fed to complete its tapering and then wait before hiking the fed funds rate.
BUT A FED TAPER, starting later this year, is now highly likely; it’s just a question of when, not whether. We think this will not rattle the markets, because it’s been telegraphed clearly (unlike in 2013) and the economy is growing. But have the markets factored in eventual rate hikes? Probably, but not definitely.
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.