The economists are probably right and the market is probably wrong when it comes to forecasting the Fed’s interest rate policy over the remainder of this year.
Investors see a much greater chance of a more aggressive Fed. Earlier this week, the futures market was pricing in nearly an 80 percent chance of either a 50 basis point cut in September or a 25 basis point inter-meeting cut in August followed by another 25 basis point cut in September. Those expectations have been tempered as the stock market panic of Monday has subsided, but
A Democrat sweep in November is unlikely; but if that were to come to pass, the resulting policy mix would almost certainly be inflationary. We would expect, fossil fuel repression, and Green New Deal spending, all of which are inflationary. More importantly, the tax increases they are pushing will do nothing to reduce inflation even if they did manage to reduce the budget deficit. More likely, they’ll exacerbate inflation.for the simple reason that much of the taxes were not going to be spent on consumption goods. But they do reduce investment, which reduces economic output. Similarly, raising corporate taxes may add funds to government coffers but will do little to reduce inflationary pressures.
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