Inflation Reduction Act is 'a foot in the door' for Democrats' future legislation: Strategist

Senate Democrats got a win under their belt last Sunday. Thanks to a tiebreaker ballot from Vice President Kamala Harris, the Senate passed the Inflation Reduction Act of 2022 in a narrow 51-50 vote. The bill is expected to pass the House and make its way to President Biden’s desk 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.

“Let me say this: this is a foot in the door for 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, 17%? They have their foot in the door,” Valliere told Yahoo Finance Live.

While the Inflation Reduction Act places 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 views the bill as a first step to more progressive legislation to be introduced by Democrats.

Democrats have a long way to go to uphold their party platform. The Democratic National Committee (DNC) outlined that Democrats actively support pushing for universal healthcare via a public option, mitigating Wall Street’s corporate abuses, and protecting consumer rights. Democrats also have other objectives on their bucket list, from guaranteeing affordable housing to pursuing environmental justice.

Valliere believes the renewable energy sector will benefit from the bill’s passage.

“I think alternative energy will get some pulses, whether it’s electric vehicles, wind, solar, things like that. In the short run, I don’t see a big impact. Like I said…I think the inflation impact will be very minor,” Valliere said.

Most experts agree that the Act would have a nominal impact on reducing inflation. The Penn Wharton Budget Model (PWBM) forecasts a slight increase in the personal consumption expenditures (PCE) price index – 0.05 percent points – until 2024. But the PCE price index is expected to fall 0.25% in the late 2020s, according to estimates.

Valliere thinks consumer price index (CPI) data releasing Wednesday will be a stronger indicator of where inflation stands.

“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%,” 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% likelihood of the federal funds target rate being 3% - 3.25% at September’s Federal Open Market Committee (FOMC) meeting.

Regardless of what the inflation story looks like, Valliere thinks there will not be much legislation passed as pollsters bet Republicans will take back the House in 2022.

“I think the momentum is gone to do much more of any kind of legislating. That will extend for the next two and a half years… 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 – looming uncertainty remains whether it is enough for Democrats to maintain control.

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

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