The Senate Democrats had a win last Sunday. The Senate passed the Inflation Reduction Act of 2022 in a narrow 51 -- 50 vote thanks to a tiebreaker ballot by Vice President Kamala Harris. The bill is expected to pass the House and make its way to President Biden in the coming weeks.
Greg Valliere, AGF Investments Chief U.S. Policy Strategist, broke down the Inflation Reduction Act, how Americans should expect the bill to impact inflation, and what the bill's passage means for the 2022 midterm elections.
This is a foot in the door for Democrats. Is there going to be a 2% tax on stock buybacks? Is it possible for people to go for 15 or 20 prescription drugs instead of 10? What is the difference between a corporate minimum tax of 16,17% and a corporate minimum tax of 16, 17%? Valliere told Yahoo Finance Live that they have their foot in the door.
While the Inflation Reduction Act imposes a 1% excise tax on stock buybacks, a $2,000 cap on out-of- pocket prescription drug costs and a 15% corporate minimum tax, Valliere believes that the bill is a first step to more progressive legislation to be introduced by Democrats.
The Democrats have a long way to go to uphold their party platform. The DNC outlined that Democrats supported universal healthcare via a public option, mitigating Wall Street's corporate abuses, and protecting consumer rights. The Democrats have a number of other goals on their bucket list, from guaranteeing affordable housing to pursuing environmental justice.
Valliere believes that the renewable energy sector will benefit from the bill's passage.
I think alternative energy will get some pulses, whether it is electric vehicles, wind, solar or something like that. I don't see a big impact in the short run. The inflation impact will be very minor, according to Valliere.
Most experts agree that the Act would have a nominal impact on reducing inflation. The Penn Wharton Budget Model PWBM predicts a slight increase in the PCE price index by personal consumption expenditures by 0.05 percent until 2024. The PCE price index is expected to fall by 0.25% in the late 2020s, according to estimates.
Valliere believes that consumer price index data releasing Wednesday will be a better indicator of inflation.
I think we will see some signs that inflation is peaking, but peaking at a very high level. I think a 4% or 5% inflation rate going into next year would be great, but that is not 2%, Valliere explained.
Valliere anticipates a 75 basis point hike from the Federal Reserve, as does the futures market.
CME FedWatch s Tool predicts a 69.5% chance of the federal funds target rate being at September's Federal Open Market Committee FOMC meeting.
Despite what the inflation story looks like, Valliere thinks there won't be much legislation passed as pollsters bet Republicans will take over the House in 2022.
I think the momentum is gone to do more of a kind of legislating. That will be extended for the next two and a half years, and I think there s not going to be a lot done, Valliere noted.
While Valliere listed some major Democratic wins recently, the passage of the CHIPS Act, Kansas voting to protect abortion rights and the killing of Al Qaeda s leader looms uncertainty as to whether it is enough for Democrats to maintain control.