Constituent policy

AGF Management: Inflation surge has three major policy implications

YESTERDAY’S TERRIBLE INFLATION REPORT has three major policy implications: first, additional spending legislation looks increasingly unlikely; second, state officials assess the relief of shocked consumers; third, the Federal Reserve must brake aggressively.

INFLATION COULD REACH BY SPRING, based on year-over-year comparisons, but high gasoline prices, supply chain bottlenecks and upward wage pressure are expected to persist for much of the summer. In the meantime, voter attitudes will begin to harden as the fall elections approach.

BEFORE YESTERDAY’S DATA, President Biden had a dismal 37% approval rating on his handling of the economy; this number will probably decrease by a few more points.

AFTER YESTERDAY’S REPORT, DEMOCRATS CONSIDE THE HOUSE is likely lost. Republicans need a gain of just five seats in November, and some analysts believe the GOP will win a net 30 seats. We believe the Democrats may only lose 15-20 seats, but the question is not whether the House will fall, but by how much – and the Senate is also at stake.

POLITICAL IMPLICATIONS: First, Sen. Joe Manchin (DW.Va.) was vindicated; the economy is too hot to accommodate new spending. President Biden’s Build Back Better bill is about sustaining life; maybe a few watered-down provisions can be passed, but new spending has little support, as US debt now exceeds $30 trillion.

MANCHIN SAYS HE COULD ACCEPT tax hikes on very wealthy, very profitable corporations, but he may be saying that to please his constituents in West Virginia. who support taxing the rich. But another hard-nosed Democrat, Senator Kyrsten Sinema, opposes most new taxes.

SECOND, ATTENTION MAY SHIFT to the states, where governors are dusting off proposals to cut the gas tax and eliminate taxes on groceries. Most states are teeming with cash thanks to the roughly $6 trillion in federal stimulus passed in 2021, so we expect tax relief to become a hot topic.

VULNERABLE DEMOCRATS – The senses. Maggie Hassan (NH) and Mark Kelly (Arizona) – reacted to the inflation report yesterday by announcing a proposal to suspend the federal gas tax until the end of the year. That would lower the cost of a gallon of gasoline by 18.4 cents through January. Other Democrats renewed their calls for controlling prescription drug prices.

AND A REPUBLICAN TO WATCH — Virginia Gov. Glenn Youngkin (R) — has called for the elimination of the state’s 2.5% grocery tax. Youngkin also proposed reducing the state gasoline tax by 5 cents per gallon.

THIRD, POLICY FOCUS will be on the Federal Reserve, which has come under increasing criticism for its bloodthirsty dismissal of an inflation threat last summer. Now, central bankers will have to consider a 50 basis point rate hike in March or May, accompanied by an accompanying move to start shrinking their balance sheets.

THE RISK, AS MONETARY POLICY TIGHTENS and inflation remains high, is that the Fed overdoes its moderation, raising the outlook for an economic slowdown in 2023.

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 time of publication and should not be considered personal investment advice or an offer or solicitation to buy and/or sale of securities. Speculations or opinions expressed about future events, such as market or economic conditions, corporate or securities performance, or other projections represent the opinions 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 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. All financial projections are based on the opinions of the author and should not be considered forecasts. 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 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 an individual’s situation.

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 advisers in the United States. AGFI is a registered portfolio manager with Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that make up AGF Investments manage a variety of mandates consisting of equities, fixed income securities and balanced assets.

Founded in 1957, AGF Management Limited (AGF) is an independent, globally diversified asset management company. AGF takes a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and wealth businesses focused on delivering an exceptional client experience. AGF’s portfolio of investment solutions spans a wide range of clients globally, from financial advisors and individual investors to institutional investors, including pension plans, corporate plans, sovereigns, endowments and foundations.

For more information, please visit

©2022 AGF Management Limited. All rights reserved.