Is a $1.9 Trillion Covid Relief Bill Really Necessary?
Author: Greg Valliere
January 25, 2021
THREE ENORMOUS CONTROVERSIES have erupted in Washington — impeachment, the Senate’s filibuster rules, and the size of a potential covid relief bill. All are connected, but we’ll focus on the covid bill this morning because it’s the most relevant issue for the financial markets.
SURPRISE — THE ECONOMY IS GROWING: It’s not politically correct to say the economy is doing well; many people are hurting and need assistance, while Covid fatigue is pervasive. But . . . the economy is growing —
GDP data to be released this Thursday is expected to show a 7.5% rise in the fourth quarter, according to the Atlanta Fed.
Housing is booming, prices are red-hot in many parts of the country.
Trade between the U.S. and Asia is so robust that ports are clogged, according to an eye-opening piece in this morning’s Washington Post.
The stock market, anticipating six months out, is near record highs.
Much of the money allocated in previous spending bills — including the $900 billion measure that passed last month — has not been spent.
WE UNDERSTAND THAT THE LABOR MARKET IS WEAK, and most people in the lower 25% of income earners need more assistance. And it will come, eventually. But the current Biden plan would send checks to wealthy families which have not been hurt by layoffs. Extended unemployment benefits make more sense.
WITH THE BUDGET DEFICIT SURGING, most Republicans (and a few Democrats) are inclined to wait before spending another $1.9 trillion. Moderates in both parties held a virtual meeting yesterday that highlighted a desire to scale back this bill, while providing essentials — such as funding for the very disappointing vaccine rollout.
THE BOTTOM LINE: President Biden still wants a bipartisan Covid bill that he could negotiate downward, perhaps to $1.5 trillion. Or he could align with progressives like Bernie Sanders and try for $1.9 trillion or more by using the budget reconciliation process, which would require only 51 votes.
BUT IT’S NOT CERTAIN that all Democrats would go along with reconciliation. Even if they did, it would poison the well for the rest of Biden’s activist agenda, which could bog down later this year.
PASSING A COVID RELIEF BILL WILL TAKE TIME: The Senate is a total mess right now, bogged down by all the issues that make America hate Congress; the posturing is already underway for 2022 and 2024 elections. It could be late March before a Covid bill passes.
THE KEY, OF COURSE, IS COVID: Hospitalizations appear to be leveling off or dropping, and Biden is determined to jump-start vaccine distribution (he has a VERY short honeymoon on Covid). Even Amazon, the distribution behemoth, could be part of the vaccine solution.
WE THINK THE ECONOMY will be humming by late spring, with still another
relief package in late March helping people who need aid. But with much of the economy already doing well, there’s a risk of over-doing monetary and fiscal stimulus, which could drive bond yields and inflation higher in the coming months.
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