Powell does not want you to recapture lost purchasing power/Tax, regulatory and tariff expectations/A few earnings comments

Jay Powell reminded us again last week that once purchasing power is lost, it is lost forever. In response to a question at the press conference about the Fed's pre Covid policy shift to inflation symmetry where they would allow a period of above 2% inflation to make up for a period of below 2%, and that instead blew up spectacularly in their face, Powell said they will not tolerate now a period of below trend inflation in order to catch up to the very high level over the past few years. That would of course give relief to consumers if they did. He however just wants the inflation rate of change to stop at 2% and reinforces the inherent persistent inflation bias of the Fed where the rate of change of the inflation increase is the only question. 

With respect to the policies of the incoming administration, to state again, on the tax side I'm guessing at best the corporate rate stays the same after the dramatic and needed cut in order to make us competitive and encourage businesses to be here, in 2017. The income tax cuts will get extended with tweaks here and there as there has to be another round of pay for's for a bunch of it. So at least on the tax side, not much will change as the long hanging tax fruit was already pulled in Trump's first administration. The real incremental benefit will come on the regulatory side, most notably the particular industries like financials that ripped higher last week as we know but the flow thru to earnings is not easily quantifiable. Also, M&A bankers are partying it up in anticipation of the deal flow that is to come and that is much more quantifiable. 

That leaves of course tariffs. A targeted, pinpointed batch of them I think can be tolerated by the economy and markets but a scattershot approach will not be. Also, if the goal is to encourage bringing production back to the US, they better be sure because if a tariff on a particular item that is produced in China and imported here is just reshored to Vietnam for example, what is the point of the tariff. We also await the retaliation on both a tariff response to us and many countries that get hit by our tariffs will try to weaken their currencies in order to mitigate it.

One thing unfortunately that is not being done is a reflection on the 2018 tariffs that sent US manufacturing into a recession and we just saw the 2^nd largest US goods trade deficit on record and China is printing record $80b ish trade surpluses with the world each month. Can anyone tell me what the benefits were? 

The thing I have to push back on are those that argue tariffs aren't inflationary saying it is just a one time price adjustment, therefore nothing sustainable. Maybe, but it still is a rise in the cost of things on top of the big inflation we've just digested. To use as an example, if the price of gasoline jumps to $4 per gallon from $3 in a one time adjustment, should consumers feel ok about that just because it may not be repeated the following year?

From Bloomin' Brands, the owner of Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill and Fleming's: