A Cordial White House Meeting — But Democrats are Determined to “Go Big”
Author: Greg Valliere
February 2, 2021
JOE BIDEN IS COMFORTABLE in the most exclusive club in Washington — the Senate, where most members shun the bombastic rhetoric that dominates the House. Last night’s meeting between Biden and ten Republican Senators was cordial, but it had little impact on the covid relief bill — Democrats are determined to “go big.”
RANK-AND-FILE DEMOCRATS have little use for calls for bipartisanship; they want the next bill to spend something close to Biden’s $1.9 trillion package. They’re already preparing a budget resolution — the vehicle for a huge budget reconciliation package that should pass in March without GOP support.
WHETHER THE ECONOMY REALLY NEEDS THAT MUCH is another issue. New forecasts, including an upbeat prediction from the Congressional Budget Office, anticipate solid GDP growth by later this year, with unemployment falling to 5.3% by the end of this year. A new forecast from the Brookings Institution anticipates unemployment temporarily falling even lower by the end of the year.
THAT COULD PUT SOME UPWARD PRESSURE on inflation — which Fed Chairman Jerome Powell says he would welcome. Be careful what you wish for, we say.
IF THE NEXT COVID BILL spends anywhere close to $2 trillion, a logical question is whether it could boost bond yields. Atlanta Fed President Raphael Bostic told CNBC that the Fed may have to consider rate hikes by mid-2022. That’s unlikely — even with more fiscal stimulus — but a tapering of Fed asset purchases could occur within a year.
THOSE WHO EMBRACE AN UPBEAT ECONOMIC OUTLOOK concede that it’s dependent on Congress passing the $1.9 trillion Biden bill — without it, risks to the economy would continue to be downside risks.
PASSING A $1.9 TRILLION BILL DEPENDS on the Democrats getting 50 Senate votes, with Kamala Harris breaking the tie. But that 50th vote depends on West Virginia Sen. Joe Manchin, a moderate Democrat, agreeing to a bill that he considers too expensive. And he points out that little of the $900 billion relief bill that passed a month ago has actually been spent.
BUT MANCHIN MAY HAVE GOTTEN SOME IMPORTANT COVER, as West Virginia’s Republican governor, Jim Justice, proclaimed yesterday that “I don’t think America can go wrong being too high (on spending). It’s not worth trying to be fiscally conservative at this point in time,” Justice told CNN. “If we actually throw away some money right now, so what? We have really got to move and get people taken care of.”
VIRTUALLY ALL DEMOCRATS — and a few Republicans like Justice — agree but exceptional monetary and fiscal stimulus inevitably will begin to stir concern in the markets about higher inflation and higher interest rates — as the virus subsides by summer and the economy begins to surge.
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