The Coronavirus and the Federal Reserve; What Happens After South Carolina?
Author: Greg Valliere
February 27, 2020
PRESIDENT TRUMP’S PRESS CONFERENCE last night showed why he’s the favorite to win re-election: he’s a stunning performer — funny, nasty, disingenuous and upbeat all at once. And he’s really good at deflecting blame (Mike Pence will make a very convenient scapegoat, if necessary).
THE ULTIMATE SCAPEGOAT FOR TRUMP, as usual, is the Federal Reserve, which Trump blamed last night — along with the media and the farcical Democrats’ debate in South Carolina — for spooking the financial markets.
THE MARKETS DON’T SPOOK EASILY but there’s a legitimate concern that supply chains with China will dry up, there’s concern about a recession (or worse) in much of the world, and there’s concern about plunging corporate profits. Trump criticism aside, this puts great pressure on the Fed.
IF MARKETS DON’T STABILIZE SOON, we think central banks around the world will be forced to stimulate. Will still lower rates make a huge difference? Maybe not, but a Federal Reserve move could halt the slide in equities, while sending a signal that more stimulus could be forthcoming if the virus spreads.
THE FED ALREADY WAS IN AN ACCOMMODATIVE MOOD: In a little noticed speech last week, Gov. Lael Brainard proposed a novel approach to inflation targeting. If inflation fails to meet its target by, say, 1/4 percentage point, the Fed should then exceed that target by 1/4 percentage point, she said.
IRONICALLY, THE FED AND TRUMP ARE ON THE SAME PAGE: They all agree that inflation is too low, and now they face a crippling global crisis that could drive inflation even lower. Fearless forecast: the Fed will cut rates by early spring and probably will cut again in early summer — setting the stage for an economic snap-back in the second half.
* * * * *
WHAT HAPPENS AFTER SOUTH CAROLINA? We think Joe Biden will win the South Carolina primary on Saturday, maybe not comfortably, but a win is a win. Then comes the really heavy lifting: next week’s Super Tuesday primaries, which are shaping up as a modest success for Biden — or, more likely, a crippling blow.
BIDEN SUPPORTERS MUST BE HORRIFIED by an article in this morning’s New York Times, which describes an ill-funded, inept campaign operation for him in key Super Tuesday states. Biden is nearly out of money, facing a blowout in California on Tuesday and a close finish — at best — in Texas, North Carolina and Virginia.
BIDEN LOYALISTS SAY HE WILL WIN enough delegates on Tuesday to stay in the race, and they insist he will do well with African-Americans and blue collar workers in upcoming primaries in Ohio and Michigan. Maybe. But his window is closing fast; perhaps only an enthusiastic endorsement from Barack Obama, blasting Bernie Sanders, could make a difference.
AS FOR THE RIDICULOUS THEORY that the stock market fears Bernie Sanders, just talk with moderate Congressional Democrats who privately blast him as a grouchy old Marxist with tons of baggage. If he’s the nominee, the Senate should easily stay Republican and the liberal House could flip back to the GOP. The stock market should be thrilled if Bernie wins the nomination.
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.
©2021 AGF Management Limited. All rights reserved.