Reinhart Week in Review by Madison Investments 8.27.2021


Federal Reserve (Fed)

In a speech delivered to a virtual Jackson Hole summit audience, Fed Chairman Jerome Powell suggested that the Fed could begin withdrawing some of its policy accommodation this year. Over the past eight months, the Fed has consistently said it would continue the pace of asset purchases until “substantial further progress” is made towards its maximum employment and price stability goals. According to Chairman Powell, that “test has been met” on inflation and there has been “clear progress toward maximum employment.” He added that most Federal Open Market Committee (FOMC) participants agreed at the July Federal Open Market Committee meeting that “it could be appropriate to start reducing the pace of asset purchases this year.” Regarding guidance on the first rate hike, Powell was careful to note “the timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.”

Our Take: The economic recovery has reached a point where the Fed can consider reducing the size of asset purchases. Even with the taper starting before year-end, the Fed’s overall accommodative stance will likely continue well into next year.

U.S. Consumer

While July personal incomes rose by 1.1% over June Levels due mainly to advance Child Tax Credit payments, consumer spending only rose by 0.3%. This was less than the 0.4% rise in the Personal Consumption Expenditures (PCE) deflator, and so real personal spending declined slightly in July. The PCE deflator was up 4.2% from July of 2020. Spending continued to rotate back towards services and away from goods, although Delta variant concerns are beginning to weigh on services spending. The University of Michigan consumer sentiment index remained at a decade low due to a further decline in expectations.

Our Take: Persistent inflation and concern about the Delta variant are keeping consumer spending from returning to pre-COVID trend levels. While both are largely expected to be transitory effects, if either one proves to be more persistent that will have negative implications for economic growth in the U.S.

Municipals

The convention industry continues to struggle due to the pandemic. Convention center municipal bond issuance has declined from $2.4 billion last year to $1.5 billion this year according to Bloomberg. In addition, certain large events slated for this year including the New York International Automobile Show have been canceled for a second straight year.

Our Take: The Delta variant and surge in COVID cases have led convention event organizers to either modify or cancel events, especially in areas with high case counts. The decline in new issuance is not a surprise as uncertainty surrounding the pandemic has kept some convention center borrowers on the sidelines of the new issue market.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

Any performance data shown represents past performance. Past performance is no guarantee of future results.

Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.

This website is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.
Any performance data shown represents past performance. Past performance is no guarantee of future results.
Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.
This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Although the information in this report has been obtained from sources that the firm believes to be reliable, we do not guarantee its accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.