Last week, we held our January research briefing, featuring special guest speakers John Fagan and Brendan Walsh, co-founders of Markets Policy Partners (MPP). MPP is a Washington, D.C.-based independent advisory service that informs clients on matters at the intersection of markets and policy, and in the public sector.

Click here for a video of the research call

MPP’s presentation addressed the following topics:

Federal Reserve Firmly Hawkish [3:08]

MPP said the hawkish members of the Federal Open Market Committee are overly committed to fighting inflation. Fear of future supply shocks and rising consumer prices linger as concerns about the impact of Omicron remain. [3:20]

Interest rate hikes are imminent, with discussions ranging from four to six hikes. The market, MPP says, is “way too hawkish” at the moment, and the March meeting and its subsequent policy statement bear close scrutiny. [6:25]

Investors should not “fade the Fed” just yet and wait until the March policy meeting to make a call. [7:10]

Energy as a Weapon [8:54]           

Geopolitical risk remains at very high levels with there being tremendous uncertainty regarding oil-producing countries – like Nigeria, Khazakstan, and Russia. The first half of the year will see countries use oil as a weapon against recovering Western economies as producers attempt to recover pandemic-related revenue losses. [9:54]

U.S. Inflation Outlook [10:20]

The Biden administration will align itself with the Federal Reserve to contain inflation, creating sloppy and choppy trading action. Traders can expect a flat yield curve and higher volatility with positions shifting from growth to value (except for technology stocks). [10:30]

Despite a rough and weak start in 2022, the U.S. dollar will “re-couple” with real interest rates and move higher. [13:00]

With its focus on fighting inflation, the Federal Reserve can break from other global central banks’ more accommodative monetary policies. [13:40]

The China Syndrome [15:50]

The Asian giant continues to provide stimulus to its economy – and will continue this path aggressively. Eventually, the government will dial back its efforts in the third quarter when it swears in Xi as its first third-term President. [16:01]

The government remains committed to containing housing market weakness – keeping the Evergrande fiasco isolated – and avoiding a systemic real estate crash. The government, MPP adds, will engage in a targeted minimalistic stimulus program as opposed to flooding the market. [17:20]

The U.S. government will remain tough on China, keeping current tariffs in place and supporting a strong dollar. No one wants to “be soft” on China. [19:15]

Inside the Beltway [21:28]

President Biden’s Build Back Better legislation will pass – just not at the proposed $1 trillion dollar amount. [21:38]

Legislators will run their mid-term campaigns based on the successful passage of the BBB and push the stalled American Family Plan as their new legislative focus. [22:40]

Wholesale Republican midterm gains are widely expected in the House of Representatives. Due to the “idiosyncratic” nature of the Senate, modest gains are expected but it’s too early to forecast. [23:30]

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For questions or to learn more about Markets Policy Partners, please reach out to [email protected] for more updates and insights.