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MONETARY

• President Biden renominates current Federal Reserve Chairman Jerome Powell for a second term. Powell’s new term as Chairman of the Federal Reserve will expire in 2026, and his term as a member of the Board of Governors will expire in 2028³
  • Additionally, President Biden appoints Lael Brainard as Vice Chair of the Federal Reserve. Brainard will replacing Richard Clarida and will serve as Vice Chair of the Federal Reserve until 2026. Brainard’s term as a member of the Board of Governors will also expire in 2026³
• In the Federal Reserve’s recent release of the FOMC minutes, participants noted several developments regarding the economy and markets⁴
  • Regarding GDP growth, participants noted that economic growth had slowed significantly in recent months due to the continuation of widespread supply chain disruptions, labor shortages, and effects from the spread of the Delta variant⁴
    • Despite the recent slowdown in economic activity, FOMC participants are still expecting robust levels of GDP growth in 2022 on the expectation that an easing of supply chain constraints will correct current supply/demand imbalances and provide a positive backdrop to economic growth⁴
  • On Labor Market conditions, FOMC participants noted that the data suggests overall employment continues to improve, however businesses were still reporting elevated difficulties attracting and retaining workers⁴
    • Business contacts across various reporting districts reported utilizing wage hikes and increased use of automation to help alleviate labor supply issues. Moving forward, FOMC participants expect an easing of labor supply issues throughout 2022⁴
  • FOMC participants also noted that while Inflation levels remain elevated, current pricing pressure are likely to reflect transitory factors caused by supply chain disruptions and would likely abate throughout 2022⁴
    • Among the risks cited as potentially leading to higher inflation for longer included businesses’ enhanced ability to pass through increased costs to end consumers, high levels of wage growth, and highly accommodate financial conditions⁴
    • Factors cited that would suggest current levels of Inflation would not persist for a meaningfully long period of time include the absence of a wage-price spiral, the notion that the most sizeable price increases have already occurred, and a normalization of supply chain constraints⁴
• In the most recent release of the Federal Reserve’s Beige Book, the Fed noted that overall economic growth continued at a modest to moderate pace, but was still being constrained by supply chain constraints related to labor shortages⁶
  • It was also noted that consumer spending continued to increase at a modest pace, however sales to consumers were held back due to low levels of inventory for some items⁶
  • Regarding employment, the Fed noted that overall employment growth varied across reporting districts, ranging from modest to strong. Robust wage growth was seen across all reporting districts as employers attempt to attract and retain workers. Additionally, flexible working hours were another cited measure being used by employers to attract and retain employees⁶
  • On inflation observations, it was noted that prices increased at a moderate to robust pace across all reporting districts. Higher input costs due to high demand for raw materials, supply chain and logistical issues, and low labor supply appear to be getting passed through to end consumers. However, the Fed did note that wider availability of some products like semiconductors and steel products lead to easing of pricing pressures in some areas of the economy⁶

 

FISCAL

• The Build Back Better Plan passes the House of Representatives and now will move to the Senate for vote⁵
  • According to sources, Senate majority leader Charles Schumer (D-N.Y.) may be planning to have the Senate vote on the bill by December 13⁵
  • The bill is being passed under the Budget Reconciliation process and would therefore only require the support of 50 Senators in order to become law⁵
    • At present time, it is not known whether Democrat Senators Joe Manchin (D-WV) or Kyrsten Sinema (D-Ariz.) will vote to support the bill⁵
    • If either Senator were to not support the bill, the measure would fail to become law⁵

 

GEOPOLITICS

• In response to elevated gas prices and continued supply chain difficulties, President Biden announces that the U.S. will release 50 million barrels of oil from the Strategic Petroleum Reserve¹
  • Move comes amid a multi-nation effort to lower energy costs with multiple nations also releasing oil from their respective petroleum reserves. Other countries joining the move include China, India, Japan, Republic of Korea and the United Kingdom¹
  • Member countries of OPEC+ have suggested that any release from their customer countries’ petroleum reserves may be met with a commensurate drop in OPEC+ production to stabilize oil market prices from a sudden increase in supply²

 

MISCELLANEOUS

• Ugur Sahin, the co-founder of BioNTech, the firm who partnered with Pfizer to develop a Covid-19 vaccine, states that the new Omicron variant will likely be vulnerable to immune cells that will destroy it once it enters the body⁷
  • (Sahin) “Our message is: Don’t freak out, the plan remains the same: Speed up the administration of a third booster shot”⁷
  • (Sahin) “Our belief [that the vaccines work against Omicron] is rooted in science: If a virus achieves immune escape, it achieves it against antibodies, but there is the second level of immune response that protects from severe disease—the T-cells”⁷
• Australia’s Chief Medical Officer Paul Kelly states that there is no indication at all that the Omicron variant is any more deadly than preceding variants. Additionally, he suggests the new Omicron variant may even be much milder than the preceding variants⁸
  • (Kelly) “Of the over 300 cases that have now been diagnosed in many countries, they have all been very mild or in fact had no symptoms at all”⁸
  • (Kelly) “Many of the cases that have been diagnosed in many countries around the world, from travelers almost exclusively from southern Africa, have been doubly vaccinated…” “But, again, they have not had severe disease. So, we need to wait and watch and gather more information”⁸

 

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. The White House. “President Biden Announces Release from the Strategic Petroleum Reserve As Part of Ongoing Efforts to Lower Prices and Address Lack of Supply Around the World”. November 23, 2021
2. Bloomberg. “OPEC+ Warns of Response as Biden Poised for Oil Reserve Release”. November 22, 2021.
3. The White House. “President Biden Nominates Jerome Powell to Serve as Chair of the Federal Reserve, Dr. Lael Brainard to Serve as Vice Chair”. November 22, 2021.
4. Federal Reserve. “Minutes of the Federal Open Market Committee November 2–3, 2021”. November 24, 2021.
5. The Hill. “Schumer eyeing Build Back Better vote as soon as week of Dec. 13”. November 30, 2021.
6. Federal Reserve. “The Beige Book: Summary of Commentary on Current Economic Conditions”. December 1, 2021.
7. The Wall Street Journal. “Omicron Risks Infecting Vaccinated People but May Not Cause Them Severe Illness”. November 30, 2021.
8. Bloomberg. “No Evidence Omicron Is Deadlier, Australia Health Chief Says”. December 1, 2021.