If anyone needed a reminder, this morning’s reaction to the news on inflation and what that reading will mean for the outlook for future Fed action turns out to be more critical and immediate than the debate last night. Inflation remains stubborn and presents a rationale to go much more incrementally in easing than the market desires. Clearly, the equity market reaction today is a bit overdone.
We also keep hearing jabs at the health of the economy. Real incomes are up for the first time since before the pandemic, unemployment is low, and the consumer is spending as demonstrated in the inflation readings. We are even witnessing some easing of mortgage rates with early signs that the housing market is poised for some long-awaited improvement. If one wants to view what a bad economy looks like take a trip with me through the Time Tunnel to the early 1970s. If you were in grammar school then, trust me it was as bad as the pundits like to cite.
Concerning the political agenda, what should be top of mind is how to maintain growth and to ease the challenges of providing items necessary for daily living. Tax cuts alone cannot achieve these goals.
The challenge becomes how expensive are all the proposals being bandied about from a budget perspective and will these proposed actions achieve the desired outcomes? Remember the Laffer curve? The positive outcomes are not a foregone conclusion.
We are facing another potential government shutdown with the September 30 deadline rapidly approaching. Once again, the deadline is becoming a political football. Does anyone really believe that a shutdown is beneficial before an election? It just appears that a lame duck session will make attainment of the goal easier to accomplish. We still do not prefer to have all these extensions. States and localities do not have as easy a time engaging in this kind of behavior.
The market is doing some of the Fed’s work by driving rates lower. A ten-year Treasury at 3.64% is at the lowest end of the range in some time. Although municipal rates may stand to moderate as well, the increase in supply coming to market will be a governor on improvements. In the meantime, we would expect Issuers to continue the push to come to market before the election. August volume was a record month and September stands to turn out the same. Although September has a long-standing reputation for being a very volatile month.
Turning to other topics, hurricane season is garnering more attention. We may get to see once again how good the mitigation efforts that have been made along the Gulf Coast will perform. The engineers never get a chance to implement all the projects they have in mind to prevent disaster.
Looking back on 09/11, I am grateful that most of my colleagues and family members came through that fateful day with tragic memories but relative health. We all know that many others were not so fortunate and paid a terrible price.
I am also heartened by the fact that those who protect us daily have done and continue to do a remarkable job. We have not had another major event and we should continue to support those doing the service from a budgetary and all other perspectives.
John Hallacy
John Hallacy Consulting LLC
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