“Let’s (kind of…) Make a Deal?"

MONETARY

• The Federal Reserve noted in its most recent Beige Book release that overall economic activity continued to increase at a moderate pace which was somewhat faster than the prior reporting period. The acceleration in overall economic activity was primarily attributable to further re-normalization efforts as vaccination rates increased across the United States¹
  • Supply chain disruptions continue to be a noteworthy observation made by the Fed. Primary sources of disruption in supply chains appear to be material shortages, labor shortages, and transportation bottlenecks¹
  • Homebuilders noted that demand in housing remains strong, although cost pressures and low inventory have put further inflationary pressure on home prices¹
  • Regarding employment, the Federal Reserve noted that overall employment continues to increase at a steady rate. However, the Fed also noted that it remains difficult for firms to hire workers, with particular difficulty regarding low-wage workers, truck drivers, and skilled tradespeople. Companies have continued to use signing bonuses and wage increases to attract and retain workers¹
  • With regards to inflation, the Federal Reserve noted that final prices to consumers continued to increase moderately as input prices continue to put cost pressures on companies. Supply chain disruptions were noted as the primary cause of higher input prices which have been substantially passed through to final consumers. Companies largely expect to see further inflationary pressures while supply chain disruptions continue to persist¹
• Accompanying the most recent FOMC meeting in which the Fed left its target Fed Funds Rate unchanged, the Federal Reserve produced an updated version of the central bank’s Summary of Economic Projections²
  • Participants adjusted their median GDP growth assumptions for 2021 upward from a prior level of 6.5% to a higher mark of 7.0%. For 2022, the median forecast for GDP growth remains unchanged at 3.3%. 2023 median estimates for GDP growth came in at 2.4%²
  • Median estimates for the Unemployment Rate remained largely unchanged at 4.5% in 2021, 3.8% for 2022, and 3.5% for 2023²
  • Estimates for Inflation came in at 3.4% for 2021, 2.1% for 2022, and 2.1% for 2023 which would constitute a significant deceleration in current inflationary pressures as supply chain disruptions abate²
  • Regarding expectations for future rate hikes, participants now largely expect about 1 rate hike to occur by the end of 2022, and to have about 2 rates hikes to occur cumulatively by the end of 2023²

 

FISCAL

• A bipartisan group of Senators and the White House agree in principle to an infrastructure deal that would provide for $973B in combined baseline and stimulus spending over the next 5 years which, if extended, would allow for 1.2T in combined spending over 8 years^6,7
  • Of the initial $973B total, $400B is already expected baseline spending and $537B would be new spending^6,7
    • The $537B in new spending would be divided up to provide for $312B in new Transportation spending and $266B in Other Infrastructure spending that would include items such as Water Infrastructure, Broadband Infrastructure, Power Grid Infrastructure, and Environmental Remediation ^6,7
  • Some proposed financing methods for the bill include items such as:
    • Reducing the IRS tax gap by investing heavily in tax collection efforts^6,7
    • A repurposing of previously allocated, but still unused, Unemployment Insurance Benefits^6,7
    • Repurposing previously allocated, but still unused, COVID-19 relief stimulus funds^6,7
    • Sales from the Strategic Petroleum Reserve^6,7
    • Public-private partnerships, private activity bonds, and direct pay bonds^6,7
    • State and Local investment in broadband, in addition to 5G spectrum auctions^6,7
  • The bill’s passage may experience some degree of difficulty in the House as Democrats have insisted that the House will not take up the bill until the Senate approves an additional/separate infrastructure package that revolves around ‘Social Infrastructure’ priorities which would likely need to be passed via the budget reconciliation process^6,7
    • (Pelosi) “There ain’t no infrastructure bill without the reconciliation bill”^6,7

 

GEOPOLITICS

• Pursuant to the international Digital Tax Negotiations, US announces new 25% tariffs on over $2B worth of goods from a group of 6 countries. Tariffs were then immediately suspended while negotiations continue³
  • Group of six countries include Britain, Italy, Spain, Turkey, India and Austria. Specific items tariffed include products such as clothing, footwear, handbags, and cosmetics³
  • Tariffs come in response to a Section 301 investigation which concluded that the aforementioned six countries’ Digital Taxes on predominately large tech firms discriminate unfairly against US comapnies³
  • Negotiations primarily revolving around how countries can develop a coordinated effort to precent large tech firms from reducing their taxes by shifting profits to low tax jurisdictions³
• Representatives from G7 countries conceptually reach a deal to impose a global minimum corporate tax rate of 15%^4,5
  • Details of the proposed minimum corporate tax still need to be figured out, however at present time the aim of the proposal is to increase taxes paid by “the largest and most profitable multinational companies”^4,5
  • Any finalized proposal would also need to be passed by US Congress^4,5
  • Additionally, the deal provides for the creation of a new tax that will replace existing Digital Service Taxes by considering where multinationals make money rather than where their headquarters are located^4,5
  • The deal will now be considered by member nations of the broader G20 group where it is expected to face a significant degree of dissent, as many countries in the G20 deliberately keep taxes low to attract foreign business^4,5
• Senate passes new legislation named the U.S. Innovation and Competition Act that would provide for $250B in government spending over 5 years to boost technological research and development⁸
  • Bill largely seen as a response to the ongoing competitive pressures between the United States and China as it relates to the development of technologies in areas such as artificial intelligence, quantum computing, semiconductors, and space exploration⁸

 

VACCINE

• Through June 29, 2021, there have been approximately 325,152,847 COVID-19 vaccine doses adminstered⁹
  • The number of individuals in the U.S. who have received at least one dose of a vaccine has reached a level of 179,940,202 which represents roughly 54% of the U.S. population³
  • Additionally, the number of individuals in the U.S. who are fully vaccinate continues to increase and has reached a level of 154,199,664 which accounts for roughly 46% of the U.S. population³

 

[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.

 

ANNOTATIONS

1. Federal Reserve. ““The Beige Book: Summary of Commentary on Current Economic Conditions”. June 2, 2021
2. Federal Reserve. “Summary of Economic Projections”. June 16, 2021
3. Reuters. “U.S. sets and suspends tariffs on six countries over digital taxes”. June 2, 2021
4. Reuters. “Tech giants and tax havens targeted by historic G7 deal”. June 5, 2021
5. CNBC. “Biden and G-7 leaders will endorse a global minimum corporate tax of at least 15%”. June 11, 2021
6. The White House. “FACT SHEET: President Biden Announces Support for the Bipartisan Infrastructure Framework”. June 24, 2021
7. The Wall Street Journal. “What’s in the Bipartisan Infrastructure Plan?”. June 24, 2021
8. The Wall Street Journal. “Senate Approves $250 Billion Bill to Boost Tech Research”. June 8, 2021
9. CDC. “COVID-19 Vaccinations in the United States”. June 29, 2021