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Hill Republicans are in Revolt — Their New Target is Herman Cain; Can’t We Please Get Some Inflation?

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Hill Republicans are in Revolt — Their New Target is Herman Cain; Can’t We Please Get Some Inflation?

Author: Greg Valliere

April 10, 2019

THE GRUMBLING IS INCREASING among leading Republicans on Capitol Hill, who complain that they’ve been blindsided by the White House on issues from Homeland Security to new trade tariffs. But their biggest complaint is that they’re never consulted on nominations — and they’re in open revolt over Herman Cain.

WE WENT OUT ON A LIMB last Friday, predicting that Cain had only a 35% chance of confirmation. That was too generous; our sense is that Cain has no better than a 20% chance, and we anticipate a mercy killing coming — the nomination probably will be yanked with weeks (or days). The background check on Cain surely will delve into sexual harassment charges; even Cain indicated this past weekend that he might not pass the test.

CAIN’S LIKELY DEMISE COULD HELP STEPHEN MOORE’S CHANCES, since many Republicans don’t want to oppose both of the Trump nominations; besides, Moore is very popular among conservatives. But he also faces an embarrassing background check that will focus on his child support and tax controversies. We said on Friday that Moore has a 45% percent chance of confirmation, and that might be a few points too low.

THE BIGGER ISSUE AMONG MANY REPUBLICANS is that they’re in the dark as controversies swirl at the White House. Conservative Sen. John Cornyn weighed in on Cain: “I think rather than have the embarrassment for the nominee and for the president or for senators, I just encourage that there has to be consultation,” Cornyn said.

* * * *

THERE’S A DEEPENING CONCERN at the Federal Reserve over the central bankers’ inability to generate much inflation. They want their favorite indicator — the personal consumption expenditure deflator — to hit or exceed 2%, but they can’t get there.

THIS HAS BOLSTERED THE CASE for the so-called Modern Monetary Theory, which argues that more stimulus (and deficits) aren’t necessarily a bad thing. We were at a conference yesterday where a speaker said MMT might become a reality in a few years — but we disagree, it’s here NOW as policymakers frantically explore options to heat up the economy, encourage risk-taking and revive animal spirits.

FISCAL POLICY WILL STAY REMARKABLY STIMULATIVE, not because Congress has embraced MMT, but because the path of least resistance for gridlocked Democrats and pro-defense Republicans is to spend and spend and spend. Trump and Larry Kudlow don’t care about deficits.

THE MORE INTRIGUING ANGLE IS THE FED’S renewed push to goose the inflation rate. The Wall Street Journal and others are reporting this morning that Fed officials are actively considering options such as allowing inflation to run above 2% after periods in which the rate has been below 2%. The Fed is planning a “listening tour” and a June conference to explore ways to reach inflation targets.

WESTERN EUROPE PERHAPS COULD BENEFIT from a dose of MMT, but the initial reaction to news of Italy exceeding its budget deficit target was scolding. The EU seems to be perilously close to another recession, clinging to hope that massive Chinese investments in Europe might stimulate modest GDP growth. Reducing budget deficits still appears to be the goal in the EU — but not in the U.S. (or China, for that matter).

THERE’S ENOUGH FISCAL AND MONETARY STIMULUS in the system to make 2% GDP growth a relatively low bar to clear in the U.S. this year, but the stubbornly low inflation rate will continue to be a concern. Wages will be crucial, and we suspect Trump realizes that job creation will be pivotal to his re-election prospects.

WHAT TRUMP DOESN’T UNDERSTAND is that the greatest obstacle to job creation and stronger economic growth is the shrinking labor force, a huge issue in many rural regions of the country where the economy is actually contracting. If the answer is getting more workers, a coherent immigration policy would be a good place to start.


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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