Joe Biden and Jerome Powell Will “Go Big” Today
Author: Greg Valliere
April 28, 2021
U.S. FISCAL AND MONETARY POLICY is on steroids, which will be abundantly clear after we hear from Jerome Powell this afternoon and Joe Biden tonight.
IF THERE’S A UNIFYING THEME from both men, it’s a desire to move quickly and impose massive medicine in a bold experiment to drive the economy — and employment — much higher despite the obvious inflation risks.
WE’LL FIRST HEAR FROM POWELL this afternoon, at his post-FOMC press conference. He’s likely to reassure investors that the Fed has no intention of raising rates or even considering a pull-back of the central bank’s $120 billion monthly asset purchases.
POWELL UNDOUBTEDLY WILL BE ASKED about inflation and “bubble” risks, and probably will acknowledge that any over-heating this summer would be temporary, likely to subside as goods begin flowing through the pipeline as global economies recover from the pandemic.
THANKS IN PART TO POWELL, the Treasury 10-year bond yield may stay below 2% for a few more months — the first component of “going big.” The other component will come from Biden tonight.
$4 TRILLION IN MORE SPENDING: The president realizes that the Democrats have a very tenuous grip on Congress — if just one elderly Democrat departs, the GOP could regain control of the Senate, and Republicans have a reasonable chance of taking the House next year.
SO BIDEN ALSO WILL “GO BIG,” tonight, betting that the public will continue to support his huge new spending and taxing “the rich.” What strikes us is that the Republicans can’t seem to demonize Biden; he’s likeable and low-keyed, just what most voters wanted after four years of Donald Trump.
DESPITE HIS VEER TO THE LEFT, Biden simply doesn’t look like a wild-eyed socialist, and the Republicans who are warning about massive budget deficits have a credibility issue; they didn’t care about red ink for the past four years. So Biden has a good chance to win many of the proposals he will unveil tonight.
BIDEN’S GREATEST OBSTACLE, IRONICALLY, will be a handful of Democrats who probably will succeed in scaling back the president’s spending and tax hikes, which the public generally supports. Biden’s main task tonight is to make Joe Manchin think twice about opposing him.
OUR EARLY HANDICAPPING is that Biden will get about $1.7 trillion in infrastructure spending instead of the $2.25 trillion he’s seeking; and he’ll get no more than $1 trillion in the American Families Plan, not the $1.8 trillion he will seek tonight. Still, nearly another $3 trillion in spending meets our definition of “going big.”
BIDEN IS OFF TO A GOOD START, with the exception of his lack of a plan on immigration. Republicans think they can wound Biden by portraying him as a big-government proponent of taxing and spending — but for now the public and the markets don’t mind.
AT WHAT POINT COULD the Biden and Powell medicine become an overdose? We may find out this summer.
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