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Yesterday the US Senate passed the “Inflation Reduction Act,” which really increases government and taxes. The opposite fiscal and government policy we need now!
I don’t like to rant, but I think it important that our readers understand the economic consequences of this insanity. (Scroll down for all the points of it)
Turning to the market…The start of August was more erratic for stocks after a relatively bullish month of July. Retail investors continue to be driven by FOMO (Fear of Mission Out), while many institutional investors are skeptical of the recent market climb, if not bearish.
However, both are very anxious about the rate at which central banks will need to raise interest rates to reclaim control over inflation.
The results earnings season for the year’s first half has finally been overall very positive, which was inevitable. Tech continues to get crushed, and an increasing recession cloud is starting to hit.
The US employment figures on Friday report reported 528,000 jobs were added and as the unemployment rate declined slightly to 3.5% This shows that the labor shortage would not improve, and wages are continuing to grow. However, there is a huge gap between wages and inflation.
I think this makes the Federal Reserve uber HAWKISH and likely to push rate increases until we see a 5% unemployment number. Many have used the number to question if we are in a “recession.”
We know that rising inflation is here, and the Fed is considering it priority number 1 over the stock market and the economy.
Consumers do appear to be tightening their belts and increasing credit card spending. Companies like Netflix will likely be seen as a luxury. AT&T reported that people are now falling behind in paying their phone bills.
The US Senate passed the “Inflation Reduction Act” on Sunday, and it is going to the House. In typical government fashion, the name is very misleading as it actually bloats the size of government and increases taxes.
Americans For Tax Reform did a great breakdown of the bill and its effects. Here are the key points:
One of the key things is that it hurts many investors and people when they retire. Under the new law, Democrats will levy a new federal excise tax on Americans who decide to sell shares of stock back to a firm, lowering household savings’ value. Any person with a 401(k), IRA, or pension plan will have their retirement funds harmed by tax increases and restrictions on company buybacks.
The bottom line is that it will result in more government spending, which will lead to more inflation. This is exactly the opposite of the title of the bill. There may be some opportunities for investors to buy stocks related to this bill in green energy.
Meanwhile, Nancy Pelosi’s trip to Taiwan has strained ties between the US and China, eliminating any chance of Washington lowering its tariffs on Beijing, which might have helped curb price hikes. China continues to due battle drills, but there doesn’t appear to be any military action that has caused an exchange of “gun fire.”
Inflation is everything this week. The headline estimate for the CPI report for July is anticipated to moderate somewhat from +9.1 percent in June to +8.7 percent Y/Y. On a month-over-month basis, Core CPI is projected to increase by 0.6 percent.
It is anticipated that used car costs and plane fares will also decline over the coming months, relieving some of the strain on American consumers. (We are already seeing prices decline.) With a slowdown from the 1.1 percent pace in June, the producer price index is predicted to rise by just 0.3 percent in July. PPI is anticipated to rise by 0.4 percent month over month, excluding food, energy, and trade services.
In economists’ opinion, the price reports may contribute to discussions about peak inflation. Still, they will also reinforce the widely held belief that the Federal Reserve will increase its target interest rate by 75 basis points at its meeting in September.
The University of Michigan will release its report on the state of American consumers in August on Friday, August 12. The night of August 9 to 10 will see the release of Chinese inflation data for July in other parts of the world.
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Irving Wilkinson
Editor
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