The Fed and Covid-19

This week opened with the NASDAQ index hitting a new high in a rebound from the previous week's decline. Last week, economic growth was called into doubt by the Delta variant as well as economic estimates that fell short. The sentiment has changed this week with a lower fear of Delta having a long term impact, but just shifting demand.

The Federal Reserve has a big conference this week that was moved from in person to virtual. Big questions remain for Powell, the Fed chair. Is inflation transient? The last Fed minutes indicated tapering, a pullback in Fed purchases of US Treasuries and mortgage backed securities, could happen sooner rather than later. What impact will Delta have on the strength of the economy? So far, the Fed has navigated treacherous waters successfully. The Fed provided liquidity as Covid spread by lowering interest rates and initiating quantitative easing with Congress and the former President agreeing on a fiscal rescue package providing helicopter funds to Americans. The cooperation of the Fed, Congress, and the executive branch provided the record run on asset prices since April 2020. What happens when the fiscal stimulus runs out in September and December, 2021? Will inflation persist and the economic recovery continue?

As time marches on some answers will emerge. In the meantime, interest rates remain near their lows and the stock market continues to march higher.  

 

Covid-19 Trends

How many disasters and stressful events can we tolerate at once before reaching exhaustion? We are probably near that point and all of us need a vacation or at least a respite from all this stress. Interestingly, charitable giving set a record in 2020. All this stress found a useful outlet it seems. Predictions are that charitable giving levels will return to pre-Covid levels this year.  

In-person school is back in session across much of the US, with mandatory mask wearing continuing to be a controversial topic. Where are vaccines for school children? When they are available, will we face a second wave of adverse reactions like we saw for adult vaccinations? Or mask wearing in schools? Constant battles and controversy with more division.

 

Infrastructure

Infrastructure week- is it imminent? Congress managed to pass its budget resolution after a group of moderate Democrats drew a line in the sand with the request that the bipartisan infrastructure bill be passed ASAP. The House Speaker satisfied them, and they all voted for the budget resolution. There are still a number of hurdles to overcome for passage but the bill is huge. It has substantial spending that can keep the economy moving forward as well as substantial pay fors including tax increases that we will keep watching. They include an increase in the top marginal tax rate, dividend and capital gains for income earners above $1 million, changes in estate taxes and more. The jump in federal debt and federal budget deficit will be large. Many questions remain but we will keep you informed and make recommendations for strategy as we have a clearer idea of what is in the bill and when and if it passes.

 

Behavioral Science

Here is an interesting article on our fascination with holding ourselves to deadlines https://time.com/6080389/brains-optimistic-making-deadlines/.

Anchoring on a “retirement date” we subject ourselves to yet another deadline. It makes me remember the cliche quote about “it’s not about the destination, but the journey.”

 

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The SAS Newsletters are posted on the SAS Blog weekly: https://www.sasadvisors.com/blog

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