Biden has put inflation ‘squarely in Powell’s plate,’ analyst say

Raymond James Washington Policy Analyst Ed Mills joins Yahoo Finance Live to discuss what the Biden administration has accomplished one year in and the outlook for the Build Back Better plan.

Video Transcript

JULIE HYMAN: A big theme more recently as we mark this one year of the Joe Biden presidency has been some of the challenges that he has been facing. And of course, one of them is reflected in those higher yields, and that is higher inflation. He spoke late yesterday and addressed that issue.

JOE BIDEN: The Federal Reserve provided extraordinary support during the crisis for the previous year and a half. Given the strength of our economy and the pace of recent price increases, it's appropriate as the Federal Chairman, Chairman Powell, the Fed Chairman Powell has indicated, to recalibrate the support that is now necessary.

JULIE HYMAN: Of course, him sort of getting on board with the Fed in its inflation fight is just one of a number of challenges that the president has been facing. Ed Mills is with us now, he's Raymond James Washington policy analyst. Of course, another very recent challenge and defeat that the president has suffered has to do with the Voting Rights Act. And in fact, his party as a whole has suffered that defeat. What's your assessment here a year on, Ed, as we look at the Biden presidency? It seems like a lot of the rhetoric around his performance thus far has not been terribly positive.

ED MILLS: Yeah, so Biden came out last night and wanted to act as the winning coach of a Super Bowl team. The recent performance was that more of the Jacksonville Jaguars, who are going to have the number one pick in the draft next year but you know, it has been a lot of accomplishments in year one but that comes with higher expectations because of the Democratic sweep that Democrats had in last year's election, as well as kind of expectations of Build Back Better already being signed into law, and Build Back Better being bigger than what is being discussed today. So with politics as a lot in life, it's a compared to what conversation. And compared to the expectations, what's been accomplished, what looks like can be accomplished between now and the midterm elections, are a lot less than what the progressives had hoped for.

BRIAN SOZZI: Ed, the president seemed to dump these inflationary issues right onto the plate of Jerome Powell but could the administration do anything to help bring down these levels of inflation the country is seeing?

ED MILLS: Yeah, Brian, it's a great question. And I think it was really interesting to see that the president did put this squarely in Powell's plate. We learned in season one of West Wing that there is no secret plan to fight inflation at the White House because a lot of this is in monetary policy. So that's a lot of political cover for the Fed to increase rates, to use the balance sheet more aggressively to make sure that we have some steepness in the yield curve. I do think that is going to benefit financials for this year, something we've worked with our financials team here at Raymond James.

But the other part of the conversation that's being brought up, Brian, is that it's not only the White House's fault or Congress's fault or the Fed's fault. Democrats in DC really want to shift this to a conversation about competitiveness and about antitrust. So my expectation over the coming months is more aggressive stance from the FTC, from DOJ, from Congress. I'm not sure how successful they will be but from a sentiment perspective, if we have rising rates, we have tech under pressure, is this going to be something that adds to some multiple compression? I think that's going to be the debate I'm having with clients.

JULIE HYMAN: That's really interesting, Ed. And does that also then feed into the discussions around, for example, an approval of Microsoft's acquisition of Activision?

ED MILLS: Julie, I think it does. And I think just the fact that size does matter and just the colossal dollar amount of this deal having Microsoft being the poster child of antitrust issues for an entire decade. They've largely avoided the larger conversation.

The next step here really is getting the Federal Trade Commission up to full force. It's a two, two tie right now, so the Democratic lead is not able to do anything because she's not going to be able to break that tie with her two Republican commissioners. Democrats are prioritizing the confirmation of the third Democratic commissioner. Once that occurs expect a lot more headlines and more scrutiny. And at the bare minimum delays on transactions being approved coming out of DC.

JULIE HYMAN: That is really helpful context for investors, Ed. I also want to ask you about Build Back Better, because we have talked to some investors who have called for sort of structural change in the US economy, more support for things like child care, for example, that can enable people to get back to work. But what are the prospects for that or those portions of Build Back Better as we head into '22 here?

ED MILLS: Yeah, Julie, I think what we're looking at right now is Build Back smaller and Build Back later. And what is included in the package, at least in conversations right now, the core of it is probably the climate change provision. Some of the energy tax provisions on renewables, solar, nuclear, hydrogen, that has the support of all Democrats, including Senator Manchin.

The social spending aspects of it are much more debated. The child tax credit is really expensive. So that has to be changed or significantly eliminated from the bill. Universal pre-K for three and four-year-olds seems to be at the high on that list. More subsidies for child care seems to be more kind of on the bubble right now, so it really comes down to the total cost over 10 years. Democrats are saying what they passed in the House costs about $1.8 trillion, it's probably closer to $4 trillion if you were to spend everything over 10 years. That has to be chopped up quite considerably to meet Manchin's number.

JULIE HYMAN: And finally, Ed, as we can again come back to this assessment of the presidency, what's the one thing that you think Joe Biden needs to do to sort of get momentum back behind him, and maybe change, you know, change around the perception of how he's done?

ED MILLS: I think when I talk to Democrats in town here in DC, a lot of it they do believe comes down to messaging and about setting expectations. The polling data that we've been watching quite closely is the opposition from the other party. And so the approval rating for Joe Biden among Republicans is about 5%. Those are Trump-level numbers.

And so to send the message to Democrats that Joe Biden is disliked by Republicans in a similar way that Donald Trump was disliked by Democrats from an electoral perspective, that is a flashing warning sign going into the election. So improving those numbers and really generating kind of excitement among the Democratic base is going to be the way in which Democrats if they are to limit losses in the midterms, they'd have to improve both of those scenarios.

JULIE HYMAN: Really interesting stuff. Ed Mills, always great to talk to you. Raymond James Washington policy analyst, Ed Mills. Appreciate it.