Page 25 - Investment Advisor - October 2021

the auto sector, she said. think it will decline, according to Wood. month moving average of median wage
Copper and lumber prices are also “If you look at the fiscal policy packages growth of 3.7% in July.
down, she pointed out. that might be coming our way” in the
“We really believe that some of these United States, “those could be consid- ON THE FED
statistics are going to start feeding ered extremely inflationary, especially Beyond inflation indicators, Sonders
into the inflation indicators directly or if the Fed is going to monetize them,” is closely watching for signals from
indirectly and that the surprises later she said. the Federal Reserve about when it
this year from an inflation point of view But she added: “We don’t think all will announce the timing to reduce its
are going to be on the low side of expec- of that’s going to get through — in fact, monthly asset purchases, which remain
tations,” she said. we think very little of it is going to get at $120 billion worth of Treasurys and
through. We’re hoping the infrastruc- mortgage-backed securities.
5. THE SPENDING PACKAGES POSE ture package gets through without” a Sonders does not expect another
AN INFLATION THREAT. potential negative for cryptocurrencies taper tantrum like the one in 2013, when
It is understandable why some analysts from the proposed tougher tax enforce- then-Fed Chairman Ben Bernanke told
think inflation will go up, while others ment on crypto transactions. a congressional committee that the Fed
could begin reducing its bond purchases
“in the next few meetings” even though
What Schwab’s Liz Ann previous FOMC minutes showed little
agreement among Fed officials about
Sonders Is Watching Now when to begin the easing. The tantrum
caused U.S. bond yields to soar and bat-
tered emerging market stocks.
iz Ann Sonders, chief investment price index for final demand increased Sonders expects the Fed will soon
Lstrategist at Charles Schwab & Co., 7.8% from a year ago — far more than the clarify the time frame to begin the taper-
says much of the pickup in consumer comparable 5.4% increase in the CPI. ing and its first rate increase is “still
prices “is largely behind us,” but she’s Renewed supply chain disruptions, well into the future.” [In its August
not fully convinced that the increase including those emanating from China, announcement, Fed Chairman Jerome
in inflation overall is transitory, as the could feed into rising inflation, Sonders Powell noted that the agency “could”
Federal Reserve says. In a late August said, but she noted a slight improvement begin to slow bond purchases this year.]
Schwab Live webinar, Sonders noted in supply deliveries, as reported by the
several economic measures that she’s Institute for Supply Management. ON INFRASTRUCTURE AND
following closely for signs of rising or 3. Wages. The rise in wages could STIMULUS SPENDING, TAX HIKES
falling inflation: become a longer-term inflation story as It’s too early to consider the impact of
1. Rent of primary residence and businesses struggle to attract workers, any potential corporate tax or capital
owner’s equivalent rent, which together Sonders said, noting that some sectors, gains tax increase or what will happen
account for about 30% of the consumer such as leisure and hospitality, are under with the $1 trillion infrastructure bill that
price index (CPI). The owner’s equiva- heavy pressure to attract workers. has passed the Senate but not the House,
lent rent is the amount a homeowner Those industries, however, are or the $3.5 trillion spending bill. The
could charge to rent out their home in not a large share of the U.S. economy Senate has passed a budget resolution
the current market and includes expens- or national inflation metrics. These supporting its framework. The House
es such as mortgage and tax payments. pressures could ease if more work- passed the resolution in late August.
Sonders said most Washington
Both measures are closely tracking each ers enter the labor market when experts, including Schwab’s own Michael
enhanced unemployment benefits end
other, have been falling since 2020 and
Photo courtesy of Ark Invest a year ago. earnings among private-sector work- the upper end” of the two tax proposals:
Townsend, don’t expect “anywhere near
recently headed higher, rising 2% from
in September for many.
Regarding jobs report, average hourly
2. CPI minus PPI. The year-over-
28% for corporate tax, up from 21% cur-
rently, and 39.6% for the top capital gains
year change in this data point is negative,
ers rose 4% in July from a year earlier
but, adjusted for inflation, they were
tax, up from 20%. Expectations are closer
which generally doesn’t bode well for
to 25% for the corporate tax rate and 28%
profit margins and stock prices, accord-
down 1.2%. Sonders prefers the Atlanta
ing to Sonders. In July, the producer
for the capital gains tax rate.
Fed wage tracker, which shows a three-
OCTOBER 2021 INVESTMENT ADVISOR 23