Greg Valliere, AGF Investments Chief U.S. Policy Strategist, joins Yahoo Finance Live to break down the Inflation Reduction Act's stipulations on carried interest, renewable energy investments, and how Americans should expect the bill to impact inflation.
DAVE BRIGGS: So I liken this Inflation Reduction Act to someone who says they're going to eat healthy, then they have the calorie bomb that is a taco salad. Is there anything deflationary in the Inflation Reduction Act?
GREG VALLIERE: I don't think so. It really doesn't affect gasoline, and food, and the things that most Americans care about right now. It's worth noting, however, that the spending and the deficit reduction is over a 10-year period. That's a rounding error. I don't see this as having a huge impact, plus or minus, on the deficit, and the same with inflation.
RACHELLE AKUFFO: And, Greg, obviously, there's a lot crammed into this bill. So who are the real big beneficiaries from this?
GREG VALLIERE: Well, alternative energy manufacturers, for sure. I think that the financial sector got off pretty well with just a 1% excise tax on the stock buybacks, and not having to get hit by the carried interest provision. I've been calling carried interest for years, Rasputin-- the plan that would not die. And I think that the industry did pretty well with that.
A lot of provisions in there that Manchin got. And we still probably don't know all the details. But I think the energy industry did a lot better than people have thought. In fact, a lot of people in the Republican Party have been upset with the oil industry for not opposing this bill more aggressively.
SEANA SMITH: Well, Greg, what do you make of the new corporate taxes here? The bill imposing 15% minimum corporate levy on companies that have traditionally been able to pay little to no taxes. What does that do for competitiveness here for the US, at least in the long-term?
GREG VALLIERE: I think 1% right now is not a big deal. I mean, the market shrugged it off today and late last week. So I don't see it is a huge deal. But let me just say this-- this is a foot in the door for the Democrats. What's next?
Will they go for a 2% tax on stock buybacks? Will they go for maybe 15 or 20 prescription drugs instead of 10? Will they look at a corporate minimum tax of 16% or 17%? So they have their foot in the door. And I think a legitimate fear is that over the next few years, they'll try to get more.
DAVE BRIGGS: Well, it's poised to be the Biden administration's final piece of major legislation based on the numbers we're seeing Republicans take the House, divided government, nothing gets done the next couple of years. How does the corporate world view this bill? How do investors invest off of this bill, if at all?
GREG VALLIERE: Yeah, if at all-- good point. I do think that alternative energy will get some pluses, whether it's electric vehicles, or wind, or solar, things like that. But in the short run, I don't see a big, big impact. Like I said a few minutes ago, I think that the inflation impact will be very minor. Frankly, I think the bigger inflation story comes on Wednesday and Thursday when we get new data from the government.
RACHELLE AKUFFO: And so, Greg, then, for the average American watching this, what should they be taking away from this? What's the most important thing they should be keeping an eye on in this legislation?
GREG VALLIERE: Well, I guess I would say that that's it for a while. I don't see very much. Manchin might want to do a little bit more, but I think the momentum is gone to do much more of any kind of legislating. And that will extend for the next 2 and 1/2 years-- hard to believe we still have almost 2 and 1/2 years left of the Biden first term.
And I think that there's not going to be a lot done.
SEANA SMITH: Greg, this does give Democrats progress on many of the key issues, especially what President Biden did run on. So we did see an advancement here. Do you think this is going to help at all-- help the Dems in just a couple of months when it is time for the midterms?
GREG VALLIERE: It's tempting to say, yes. We killed the head of al-Qaeda. The abortion vote in Kansas certainly helped the Democrats. You've got this bill. You've got another bill on chip manufacturing. So he has gotten a lot done.
But I think for most Americans, it's not enough. What most Americans want to see is the price of gasoline well below $4 a gallon, the price of food coming down. Until we see a really dramatic improvement of inflation, I think all of these other things are secondary.
RACHELLE AKUFFO: So then, what does this mean in terms of investment strategy from this point-- being that we don't know how soon we'll hit a recession, and now we have, obviously, this huge legislation about to potentially be passed by the House soon?
GREG VALLIERE: Yeah, I think that the deficit reduction is a sign that the era of really huge spending is starting to come to an end. And I say that because in all likelihood, the Republicans will take the House. That's a pretty safe bet. The Senate is not. That's a close call.
But if the Republicans take the House, with one of the two houses flipping, I think that we're not going to see a lot of new spending. And I think in terms of interest rates, you've got both the Fed and fiscal policy quite tight. And I think that tight policy will persist. That's a good story for the bond market.
SEANA SMITH: Hey, Greg, earlier, just a minute ago, you said that we need to see substantial improvement on inflation in order to have any real help here for the Democrats in just a few months. What does significant improvement look like? Are we talking about 6%, 5%, 4%-- give us a ballpark of what you're expecting to see or what needs to be done in order to give Dems that edge.
GREG VALLIERE: Good question. I think starting Wednesday, I think we'll see some signs that inflation is peaking, but peaking at a very high level. I think that a 4% or 5% inflation rate going into next year would be great. But that's not 2%. And the Fed wants to see 2%.
And I think that after the unemployment number we got last Friday, obviously, the Fed is tilting towards 75 basis points. So for all of the optimists, all of the bulls who feel the Fed is going to flip and not tighten as much, I just don't see it. I think the Fed has a lot more work.
RACHELLE AKUFFO: We'll certainly be keeping an eye on it. And I know investors will too. A big thank you there-- Greg Valliere, AGF Investments Chief US Strategist, thank you so much.