AGF Management: Growing Credibility Crisis of the Federal Reserve; The debt ceiling solution

Market insights and outlook

Author: 8

October 5, 2021

Federal Reserve’s growing credibility crisis;
What is the debt ceiling solution?
October 5, 2021
THE FEDERAL RESERVE, long known as apolitical, faces a serious credibility crisis as inflation rises and President Jerome Powell’s criticism grows harsher. They are bluntly asking if it’s time to clean up the Fed.

AFTER TWO REGIONAL BANK PRESIDENTS were kicked out last month for active trading, Fed supporters (like us) were hoping the damage to public relations could be contained. That was shattered in recent days when it was revealed that Vice President Richard Clarida had traded between $ 1 million and $ 5 million in early 2000, shifting bond investments to an equity fund.

THE NEXT DAY, President Powell announced that the Fed would take action to support the economy if the pandemic threatened economic growth.

THIS ENHANCED SEN. ELIZABETH WARREN, who wants Powell out. The struggling Fed chairman, who this summer insisted inflation was transient, has political criticism – but his biggest headache is the lax internal supervision over traders active in the Bank. An internal Fed watchdog has opened an investigation into the trading.

POWELL’S ANOTHER TERM ODDS aren’t much better than 50-50, an astonishing slip after he was considered a shoo-in earlier this year.

THE NAMES OF POTENTIAL SUCCESSORS have always included the conciliatory Governor Lael Brainard, but there are other candidates, including Atlanta Fed Chairman Raphael Bostic, who could become the first African-American and openly gay Fed Chairman. . Both Brainard and Bostic are said to be more aggressive banking regulators than Powell.

PRESIDENT BIDEN NEEDS ALL THE SUPPORT HE CAN GET, as his agenda stammers. So he must keep the spirited progressive Warren happy. Warren yesterday called for an SEC investigation and said “it is not clear why President Powell has not stopped these activities, which eat away at the confidence and effectiveness of the Fed.”
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DEBT CEILING – MOST LIKELY PATH: Chuck Schumer will likely lose another Senate debt ceiling vote tomorrow; he still tries to blame the crisis on Mitch McConnell. But that tactic didn’t work, so Democrats could be forced to use the complicated budget reconciliation process to approve an increase in the debt ceiling.

THERE ARE LONGSHOTS, like minting a $ 1 trillion coin (or multiple coins) that would pay off debts, but these do not pass the smell test. A path to reconciliation, which McConnell wants, is the most logical move – but it is a long process, likely to take weeks. Unfortunately, there are no more weeks until a default crisis arrives.

IS OCTOBER 18 THE REAL DEAD DATE? It could happen a bit later, in early November – but if Congress hesitates, a sense of crisis later this month could prompt the faltering Fed to take highly controversial emergency measures to prevent bonds from defaulting.

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OUTRAGEOUS IRS TAKEOVER: We don’t always agree with Wall Street Journal editorials, but your blood pressure will rise after reading today’s screed, titled “The IRS Wants to Examine Your Bank account “.

IRS OFFICIALS and many Democrats, eager to end tax evasion, apparently want to examine every account above a $ 600 balance, or with more than $ 600 in transactions in a year. It would affect virtually everyone – and could turn into an explosive election issue next year.

The views expressed in this blog are those of the author and do not necessarily represent the views of AGF, its subsidiaries or any of its affiliates, funds or investment strategies.

The opinions expressed in this blog are provided as a general source of information based on information available at the date of publication and should not be construed as personal investment advice or an offer or solicitation to buy and / or sale of securities. Speculations or opinions expressed regarding future events, such as market or economic conditions, company or security performance, or other projections represent the views of the author and do not necessarily represent the point of view of AGF, its subsidiaries or any of its affiliates, funds or investment strategies. Every effort has been made to ensure the accuracy of these comments at the time of posting; 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 projection is based on the opinions of the author and should not be taken as a forecast. Forward-looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties which may cause actual results to differ materially from those contemplated in forward-looking statements. The information in this commentary is designed to provide you with general information about the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the individual’s circumstances.

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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diversified asset management company. AGF takes a disciplined approach to delivering investment management excellence through its core, quantitative, alternative and high net worth businesses focused on delivering exceptional customer experiences. AGF’s portfolio of investment solutions extends globally to a wide range of clients, from financial advisers and individual investors to institutional investors, including pension plans, corporate plans, funds sovereigns, endowments and foundations.

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