Greg Valliere’s Top 6 Economic, Political Predictions for 2022 and Beyond

With Congress back in session this week, Greg Valliere, chief U.S. strategist of AGF Investments, says lawmakers face a “very full plate” — an expiring budget, a possible resurrection of President Joe Biden’s Build Back Better spending and tax bill, a China competition bill, a Russia sanctions measure, and a fight this spring over a Supreme Court nominee.

“Congress will have to keep the government funded past the Feb. 18 deadline that was set before Christmas when lawmakers kicked the can down the road on an omnibus spending package for this fiscal year,” Valliere wrote in his Capitol Notes email briefing.

All the while, Biden’s approval rating has taken “one of the quickest plummets I’ve ever seen,” from 60% to less than 40% in eight months, Valliere said at the Financial Services Institute’s OneVoice conference late Monday afternoon. He cited the president’s handling of Afghanistan, illegal immigration and “growing signs of crime out of control,” along with the Centers for Disease Control’s inconsistent messaging on the COVID-19 pandemic, for the steep drop.

The big legislative story by spring, he wrote, “may be a resurrection of the Build Back Better bill, as Democrats indicate they will accept virtually anything from Sen. Joe Manchin.”

At FSI OneVoice, Valliere discussed the likelihood of that bill’s passage — he referred to Build Back Better as a stimulus bill — as well as what lies ahead in terms of inflation and whether Republicans will regain control of Congress. Check out the gallery above.

(Cover image: Adobe Stock)

1. Inflation will persist.

Inflation is a “really big deal for most Americans” and is going to hurt Biden “the most,” Valliere said.

“I would argue there are two types of inflation, things like oil, grain, lumber, these things that can go up or down. … These things can be transitory.”

The real problem: labor. “That to me is the story that has propelled inflation,” Valliere said. “I think this labor inflation is going to be here for a while; you see in contracts now everybody wants a cost of living adjustment, and I think you’re going to see that trend persist.”

How can Washington fix the labor shortage? “We need more immigrants,” Valliere argued.

(Image: Shutterstock)

2. Powell and Congress will get the blame.

To be fair, Valliere said, “we were unwinding the worst pandemic of the century … Some of this [inflation] could not be predicted.

“But at the same time, let’s blame somebody. As much as I like [Fed Chairman] Jerome Powell, he was way too sanguine last spring going into the summer about the threat of inflation. Larry Summers wasn’t; The Fed got way, way, way behind the curve. It’s one of the reasons inflation got out of control.”

The economy, Valliere continued, “was like an ailing patient as the pandemic roared. Congress viewed this ailing patient as a patient that needed a lot of medicine and Congress really gave too much medicine. The side effect was inflation.”

Congress last year “spent $6 trillion to stimulate the economy — infrastructure bills, COVID relief … not all of the money has been spent, and every state in America has an enormous surplus.”

(Image: Shutterstock)

3. Tax increases in any new stimulus bill will be ‘tolerable.’

“I think there is a chance for one more bill,” he said. “I think that the famous [Sen.] Joe Manchin can be persuaded to pass one additional stimulus bill for a mere $1.4 or $1.5 trillion. I think there is a sense that he can be brought around on [pre-kindergarten] and expanded Obamacare.”

In any new Build Back Better bill, "we can … write off any chance for [an end to] step-up in basis, and changes to the estate taxes or capital gains; probably will get [Treasury Secretary Janet] Yellen’s international tax and 1% to 2% increase on wealthy folks."

In any new stimulus bill, “the tax hit I think is going to be tolerable for the economy and the markets.”

(Image: Shutterstock)

4. The Fed will raise interest rates 3-4 times.

Powell “was late to acknowledge the [inflation] problem but I think now he’s gone way overboard in the other direction” with anticipated rate hikes.

“Everyone on Wall Street, at Goldman Sachs and all the big banks are talking about four or five rate hikes this year. Starting in March at the next FOMC meeting , many people feel there could be a rate hike every meeting — from now until well into fall.”

“I’m on the low end; I’m at three to four hikes … I think the Fed has had a fundamental awakening on how serious the inflation problem will be. I don’t see inflation really being tamed for another year or longer.”

(Image: Adobe Stock)

5. The House will flip to Republican control.

Right now it would take the turnover of five House seats, Valliere said. “It’s not an issue of whether it [the House] will go to the Republicans but by how many seats — some people say 35 to 40 seats; I’m at around 20.”

The Senate “is a tougher call,” Valliere said. The Senate “could flip back [to Republicans] by a seat or two or stay with the Democrats in a tie.”

(Image: Shutterstock)

6. Tougher financial regulation is coming.

What does Biden do with two years of a Republican House? He will focus on two things: geopolitics and regulation.

In geopolitics, “we face the greatest crisis that the world has seen since the 1962 Cuban Missile Crisis,” Valliere said. “I think the story in Ukraine is very unnerving. I’ve been quoted as saying there will be a diplomatic solution. It’s not going to be perfect … but it might be a solution that allows things to cool off a bit.”

On regulation, “this is the most aggressive group of progressives I’ve ever seen in the regulatory community,” he said. “Gary Gensler at the SEC, and Sarah Bloom Raskin who will be head of regulatory at the Fed, they will be quite aggressive.”

(Image: Shutterstock)

Greg Valliere’s Top 6 Economic, Political Predictions for 2022 and Beyond

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1. Inflation will persist.

2. Powell and Congress will get the blame.

3. Tax increases in any new stimulus bill will be ‘tolerable.’

4. The Fed will raise interest rates 3-4 times.

5. The House will flip to Republican control.

6. Tougher financial regulation is coming.

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Greg Valliere’s Top 6 Economic, Political Predictions for 2022 and Beyond

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1. Inflation will persist.

2. Powell and Congress will get the blame.

3. Tax increases in any new stimulus bill will be ‘tolerable.’

4. The Fed will raise interest rates 3-4 times.

5. The House will flip to Republican control.

6. Tougher financial regulation is coming.

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