Congress Returns to Unfinished Business on Spending
Author: Greg Valliere
January 31, 2022
CONGRESS IS BACK THIS WEEK, facing a very full plate — an expiring budget, a possible resurrection of Build Back Better, a China competition bill, a Russia sanctions measure, and a fight this spring over a Supreme Court nominee.
FIRST AND FOREMOST, Congress will have to keep the government funded past the Feb. 18 deadline that was set before Christmas when lawmakers kicked the can down the road on an omnibus spending package for this fiscal year.
OUR SOURCES BELIEVE chances are less than 50-50 that a deal can be reached in time, which means still another extension is probable, perhaps lasting for months — or until the end of this fiscal year on Sept. 30. That would freeze spending at the previous year’s level, which is the Republicans’ preference.
DEMOCRATS WILL PUSH BACK, fearful of an appropriations freeze, so there may be some threats of a government shutdown. But neither party wants a shutdown and a lengthy new extension seems to be the likely option.
OTHER BILLS ON THE PLATE: A tough sanctions measure aimed at Russia, targeting technology transfers and access to U.S. financial firms, and providing aid to Ukraine, is likely to pass in February.
ANOTHER BILL, WHICH WOULD provide government funding for chip makers and manufacturers competing with China, has passed in the Senate and could move in the House later this winter, but that could slip until spring as both parties fight over who gets another big chunk of spending.
THE BIG LEGISLATIVE STORY by spring may be a resurrection of the Build Back Better bill, as Democrats indicate they will accept virtually anything from Sen. Joe Manchin. He has indicated support for a scaled-back package of funding for environmental programs, pre-kindergarten education, expanded Obamacare benefits and drug price controls. The latter polls very well.
OUR SENSE IS THAT CHUNKS of a Build Back Better bill could pass via reconciliation in a package by late spring. In addition to agreeing to spending on programs listed above, Manchin apparently will agree to all of the previously-passed tax hikes.
IF THE SPENDING PORTION of the bill is scaled back, there may be more than enough in new taxes to pay for the bill — perhaps there might be enough money to water down the proposed corporate minimum tax.
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AS A NEW MONTH BEGINS TOMORROW it strikes us that the volatile markets will continue to have two major concerns.
FIRST IS THE CONFUSING SIGNALS from the Federal Reserve, where policy can be charitably described as data-driven. Chairman Jerome Powell indicated last week that a 50 basis point rate hike in March is unlikely, he didn’t flatly rule it out. A rate hike at virtually every FOMC meeting is unlikely, but that also isn’t out of the question, Powell seemed to indicate.
POWELL SOUNDS UNCLEAR on the outlook for GDP growth and inflation — thus he’s also unclear on the exact policy path. Perhaps this Friday’s jobs report will provide some guidance.
SECOND, THE MARKETS HAVE TO WORRY about a Russian invasion of Ukraine. We still think there’s time for diplomacy, perhaps lasting through the Beijing Olympics, which end on Feb. 20. Then the focus may shift to weather — moving Russian forces will require hard and frozen ground, which which probably will persist into early March.
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