September 24, 2022

The persistent US inflation rate prompted the Fed to change course. Chairman Powell said it clearly and unequivocally, we have to restore price stability. We expect the inflation rate to remain high between now and year end and then begin to decline at an accelerating rate. If the Fed is successful and its real GDP forecast is correct, then both the inflation rate and a real GDP growth rate decline relative to the current levels making an inversion likely. The betting houses are handicapping the possible outcomes of the November midterm election. We do not see the Biden Administration changing course. We believe that during the remaining of its term, the Biden administration is going to pursue the BBB agenda. The election outcome will determine the path not the policies that the administration will pursue. Since we believe that BBB is nothing more than Obamanomics on steroid, the economic performance during the Obama years is a good starting point when considering the outlook. Given that we expect higher regulations, and we believe that this regulation will reduce the incentives to work and produce, our outlook is for a “new new normal.” We look for a slower real GDP growth rate and a higher inflation rate during the remainder of the Biden term relative to Obamanomics. The data suggest that the US is the economy losing the least economic ground in the global economy, as a result the US dollar has appreciated against most of the world currencies. For a variety of reasons, the dollar appreciation will force many of the rest of the rest world central banks to take steps to prevent their currency form depreciating vis a vis de US dollar.

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