Skip To Content

Washington Update

How potential tax changes, government spending, elections and other developments in Washington could affect the markets and your financial life


November 23, 2021

Fed winds down bond purchases: What it means for investors

AFTER MORE THAN $4 TRILLION IN BOND PURCHASES since early 2020,1 the Federal Reserve (the Fed) this month begins “tapering” its purchases in a historic program that helped keep money flowing through the economy during and after the pandemic shutdown. It will cut back purchases of Treasury bonds and mortgage-backed securities by $15 billion in November from the current rate of $120 billion per month, with similar reductions to follow in the months to come, assuming the economy remains healthy.2 At that rate, the bond purchases would end by next summer.

A headshot of Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. He is quoted saying “The decision to taper bond purchases is a turning point signaling elevated inflation and the strength of the economy.”

By effectively keeping long-term interest rates low, the program encouraged lending and investment at a time of economic vulnerability. “The decision to taper bond purchases is a turning point signaling elevated inflation and the strength of the economy,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. As the Fed balances support for the ongoing recovery against concerns over rising inflation, “the speed and magnitude of this pivot will be the largest swing factor for capital markets and asset price direction in 2022,” Hyzy notes.


Next up, interest rates?

Tapering can help counter inflation, since it means the Fed is pumping fewer dollars into the economy.  Yet further measures may be needed to control rising prices. “If inflation persists at a high level, accelerated tapering is the prelude to another pivotal step — normalizing interest rates,” Hyzy says. The Fed, which has kept rates historically low to stimulate economic growth, could begin raising them as early as the second half of 2022, he adds. “This measured approach by the Fed could help the economy complete its transition from stimulus-aided recovery to sustainable, long-term growth,” Hyzy says. Uncertainty about whether current Fed chairman Jerome Powell, whose term was set to expire in February 2022, would continue in the role was just lifted. His just-announced renomination must now be confirmed by the Senate.


What this means for investors

Despite periodic volatility, the pandemic recovery has been an extraordinary time for investors. “The S&P 500 hit record highs approximately 75 times from the start of 2021 through early November,” Hyzy notes. While that pace is unsustainable over time, a return to more normal conditions, as the Fed winds down its bond-buying and eventually raises rates, could position investors for long-term growth along with the economy.  


“We continue to recommend U.S. companies versus the rest of the world as supply problems ease, the profit cycle grinds forward and the Fed continues to apply a balanced approach to monetary policy,” he adds.  “Most important is to maintain a disciplined approach based on your goals.”


For more information on the Fed tapering and the outlook for the economy and markets, read the November Chief Investment Office Viewpoint, “Here Comes the Pivot.”


CNBC, “Fed says it will reduce purchases of bonds as inflation rises, economy recovers following COVID-19 recession,” 11-3-2021.

The Federal Reserve press release, “Federal Reserve issues FOMC statement,” 11-3-21




November 15, 2021

A $1.2 trillion boost for infrastructure — and the economy

THE NEW $1.2 TRILLION INFRASTRUCTURE INVESTMENT AND JOBS ACT will provide some $550 billion in additional funding for America’s aging highways, roads, bridges and tunnels, as well upgrades to the nation’s power grid and greater access to broadband internet.1


“When it comes to keeping the country moving, few things are more important than infrastructure.”— Joseph Quinlan, head of CIO Market Strategy, Chief Investment Office, Merrill and Bank of America Private Bank


“When it comes to keeping the country moving, few things are more important than infrastructure,” says Joseph Quinlan, managing director and head of CIO Market Strategy in the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. “That’s what makes this legislation significant.”


Did you know, for instance, that 42% of bridges in this country are 50 years or older, with 7.5% now structurally deficient; a water main breaks somewhere in the United States every two minutes; and Americans spend an extra $143 billion per year just on car repairs owing to deteriorating roads?2 The bill — the largest in more than a decade to address infrastructure, according to The New York Times3 — also includes $50 billion to help communities combat the effects of climate change, among other provisions.


For a closer look at why infrastructure matters to the economy, which industries may benefit and where investors can find potential opportunities, read Quinlan’s insights in “Why infrastructure spending is a ‘big deal’ for investors and the economy.”


1”Here’s What’s in the Bipartisan Infrastructure Bill,” CNN Politics, Nov. 5, 2021

ASCE 2021 Infrastructure Report Card. Data as of March 3, 2021

3 “House Passes $1 Trillion Infrastructure Bill, Putting Social Policy Bill on Hold,” The New York Times, Nov. 5, 2021




November 12, 2021

What are the next steps on tax reform?

In this Street Talk audiocast, Joe Quinlan, head of CIO Market Strategy in the Chief Investment Office, Merrill and Bank of America Private Bank, talks with Mitchell Drossman, the CIO’s head of National Wealth Strategies, about the tax provisions contained in House Bill H.R. 5376, a.k.a. the Build Back Better Act. They also explore potential timing of passage in the House and the risks the legislation may face when it goes to the Senate. “The tax provisions have dramatically changed since mid-September,” says Drossman. Yet the bill is projected to still raise almost the same amount of revenue: $800 billion from corporations and $640 billion from individuals.



The long and winding road to passage

The House could vote as early as November 15, says Drossman, though that vote may be delayed until revenue estimates are confirmed. Once the House passes the bill, it will go to the Senate for consideration, where, as Drossman notes, “they’ll have their own opinions.” Still, he believes “corporate and individual rates will likely largely stay within the same parameters we see in the current framework.” Then it must go back to the House to reconcile any differences.


Among the hurdles to passage are all the other issues Congress will soon have to deal with, including funding the government, passing a defense bill and dealing with the debt ceiling. “We’re not at the finish line yet,” Drossman adds. “It’s going to get interesting.”


 Implications for investors

“Understand what the tax proposals are and remain nimble,” advises Drossman. “Take a wait-and-see attitude.” Since there is currently no increase in marginal tax rates on domestic corporations in the framework, the legislation should be generally positive for corporate earnings, he believes.


Also in this audio cast, Quinlan discusses some of the market risks posed by the latest inflation figures and CIO investment strategist Kirsten Cabacungan highlights some key lessons learned from the pandemic.





November 8, 2021

The latest tax proposal: What you need to know

AFTER MONTHS OF SPECULATION on the shape of potential tax increases, “the latest tax framework contained in House Bill H.R. 5376, also known as the Build Back Better Act, may be most notable for what it does not contain,” says Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office for Merrill and Bank of America Private Bank. That’s because many of the proposed tax increases for individuals in prior proposals have been removed.


“The latest tax framework may be most notable for what it does not contain.”— Mitchell Drossman, head of National Wealth Strategies, Chief Investment Office, Merrill and Bank of America Private Bank

People with annual incomes below $10 million (or 99.98% of taxpayers) would see no change in individual ordinary income, capital gains or qualified dividend tax rates. The plan also brings no change to estate, gift or generation-skipping transfer (GST) tax exemption amounts or rates, nor to the rules governing the “step-up in basis” — a provision that limits potential capital gains taxes on assets transferred at death.


What’s in the bill?

Instead, under the bill, individuals and married couples with gross incomes above $10 million would be subject to a 5% tax surcharge on such excess. An additional 3% tax surcharge would apply to all incomes above $25 million. Likewise, the surcharges would apply to trust and estates but at lower thresholds. These surcharges would be effective starting in 2022.


The plan also calls for new restrictions on large retirement accounts held by the wealthiest Americans and prohibits Roth conversions of tax-deferred retirement assets for taxpayers with adjusted taxable income greater than $450,000 for married couples ($400,000 for single taxpayers).


Notable among other provisions is one increasing the deduction for state and local taxes (so-called SALT relief), currently capped at $10,000, to as much as $80,000 (or half that amount for married taxpayers filing separately).


Keep in mind: Further changes are likely

“While much of this is welcome news for most taxpayers, this proposal is still far from making it across the finish line,” cautions Drossman. “There is a good chance of further modifications in the Senate, which would cause the House to consider those modifications.”


Taxpayers subject to the proposed surcharges may want to discuss potential strategies with their advisors, Drossman notes. “Recognizing capital gains in 2021 or over an extended period could help avoid recognizing income in 2022 or a sharp increase in income in a single year,” he says. “Likewise, people selling businesses might want to recognize that income in 2021 or over several years.” 


Check back for updates as the tax picture evolves. And for a full look at the provisions in the latest proposal, read the recent Chief Investment Office report, “Tax Alert 2021-17: Proposed Tax Changes – Build Back Better Framework.”



Important Disclosures


Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.


Opinions are as of the date of this article and are subject to change.


Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S" or “Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).​  This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.





You need to answer some questions first

Then we can provide you with relevant answers.

Get started