Infrastructure Bill and The US Dollar

November 23, 2021    |    Sage Capone

 

Infrastructure Bill

President Biden signed the new 1.2 trillion-dollar Infrastructure Bill. The photo below provides a good breakdown of some of the designated beneficiaries. The bill combines traditional infrastructure with spending on new energy sources and over 100 billion dollars on digital infrastructure.

2021 Infrastructure Bill Overview

Source: Global ETFs

How It Could Affect Your Taxes

Many tax provisions from the bill were ultimately dropped, like an increase in the capital gains tax and the billionaire “mark to market” tax regime.

Tax Provisions in the 2021 Infrastructure Bill

Source: BlackRock

Some of the few changes that did get through, though, such as the high-income earners’  8% added surtax.

In addition, we may see the elimination of the back-door Roth Conversion which looks like it is scheduled to fade out by 2031.

The US Dollar & Inflation

With all the talk about inflation, you might think that the value of the dollar as a median of exchange is at risk. But is it really?

Broad Exchange Rate

Source: Yardeni Research

That’s not the case at all. The broad effect of the exchange rate is near its 25 year high.

US Dollar Index, 2014 - 2022

Source: TheChartStore

Despite the aggressive fiscal and monetary stimulus that has occurred, and potentially more, the US Dollar value has not diminished relative to global currencies.

In fact, it is right in the middle of its trading range since 2015.

Treasury rates may go higher if inflation numbers persist. Yet an interesting dynamic has developed.

In 2019, the 10 year treasury rate was higher than it is now, but for foreign investors that hedges the currency risk. The yields are actually negative.

FX Hedged Treasuries

Source: FMRCo/Bloomberg

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