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The Fed’s Very Blunt Instrument Prompts a Look at Tariffs

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Insights and Market Perspectives

The Fed’s Very Blunt Instrument Prompts a Look at Tariffs

Author: Greg Valliere

June 15, 2022

IN THE GROUP-THINK that dominates Washington and the financial markets, a consensus has formed: the Federal Reserve has to aggressively raise interest rates, it’s the only real weapon that can subdue inflation. Fair enough — but here comes the detractors.

EDITORS TELL REPORTERS — you must explain what the Fed rate hikes mean for ordinary Americans. So the narrative will intensify: today’s Fed move will mean higher loan rates, a shaky housing industry, and a softening of the labor market. This is what an incumbent president wants?

NOT ONLY IS IT UNCLEAR whether inflation will plummet any time soon (energy and food prices are likely to stay elevated), but the rate hikes will hit many Americans in their most vulnerable asset: their home values, as surging mortgage rates ultimately cool home prices.

THE REELING BIDEN ADMINISTRATION faces another anxiety: the Fed wants the labor market to cool, so slowing of job growth now seems inevitable. We’ll go from a decrease of hiring to actual layoffs in the next few months. Again — is this what an unabashedly pro-labor president wants?

WITH THE FED DELIBERATELY ATTEMPTING TO SLOW THE ECONOMY, Biden officials are grasping for straws. This morning’s New York Times has a fascinating article on the possibility of lifting some tariffs, even some that have been imposed on China. Lawrence Summers and many business executives believe this would shave a few tenths of a percent off the inflation rate.

BUT PRO-LABOR DEMOCRATS ARE OPPOSED: They point out that China has yet to live up to the commitments it made as part of the U.S.-China trade deal that Donald Trump negotiated.

SOME U.S. OFFICIALS think a tariff deal could make progress, but Biden’s political advisers caution that it he cuts a deal with China ahead of the U.S. election, there could be a political pushback against him as being “soft on China.” And controversy would persist over Hunter Biden’s deals with Beijing.

THERE COULD BE SOME EASING OF TARIFFS WITH countries other than China, but would deals actually reduce inflation much more than a fraction? “I want to make clear, I honestly don’t think tariff policy is a panacea with respect to inflation,” Treasury Secretary Janet Yellen said recently.

THUS THE ONLY MAJOR INFLATION WEAPON available right now is aggressive monetary policy, and Yellen is correct, it’s no panacea. Like all bitter medicine, the aggressive Fed rate hikes will be difficult to swallow — as the detractors begin to howl, starting this afternoon.
* * * * *
LAST NIGHT’S ELECTIONS: Well, if you’re a South Carolina Republican who advocates Donald Trump’s impeachment, you’re going to lose your GOP primary. No surprise there last night.

BUT THERE WERE SEVERAL OTHER ELECTIONS in which Republicans won based on their assertion that the 2020 election was stolen. That’s a problem for the party nationally, and House Speaker Kevin McCarthy seems incapable of unifying the factions.

THERE WAS ONE PIECE OF VERY GOOD NEWS FOR REPUBLICANS last night: They won a special House election in south Texas, still another sign that the Democrats are in real trouble among Hispanic voters.


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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