Mitch McConnell Throws a Hand Grenade
Author: Greg Valliere
July 7, 2021
HANGING ON BY A THREAD: Chances of passing an infrastructure bill and a crucial budget resolution this summer were hit by a major body blow yesterday as Mitch McConnell proclaimed that “The era of bipartisanship on this stuff is over — this is not going to be done on a bipartisan basis.” McConnell is focused like a laser on the 2022 and 2024 elections.
RUNNING OUT THE CLOCK: McConnell may be short a vote or two, but so are the Democrats, as both parties fight the ultimate obstacle — time. Congress returns next week only to leave by the end of July, not to return until mid-September. Here’s our take on the three major fiscal issues that McConnell wants to delay:
1. Infrastructure: A $1.2 trillion deal over ten years is still possible, but the goal of getting this passed with 60 votes — avoiding a filibuster — is daunting. A majority of Republicans oppose the plan, and not all Democrats are on board; they have differences on how to pay for the measure. Chances before the August recess: 55%.
2. A second infrastructure bill: It might be included in a massive budget resolution that would set higher spending targets in the fiscal 2022 budget. Democrats want to wrap more infrastructure spending into a reconciliation package and ram it through the Senate with 51 votes. But the trillions in new spending favored by Budget Committee Chairman Bernie Sanders does not have unanimous support from the 50 Senate Democrats. Chances before the August recess: 40%.
3. Raising the debt ceiling: Treasury Secretary Janet Yellen wants this done before the August break but she may have to juggle accounts to keep the government running until a deal passes in the fall. Chances before the August recess: 40%.
THIS IS A MESS, complicated by two Democrats — Joe Manchin and Kyrsten Sinema — who are determined to keep the price tags low. We think they can be persuaded to vote for the first infrastructure bill but their support for a second measure, with big tax hikes, is doubtful.
PERHAPS SENSING GRIDLOCK IN WASHINGTON, the fixed income markets rallied yesterday, but we think another shot of fiscal stimulus eventually will pass. It may take brinksmanship, as usual, over shutting down the government just before Christmas to get a budget deal passed — which would provide some stimulus in 2022.
CONFUSED CONSUMERS could begin to worry about a delay in new fiscal stimulus, and the threat of inflation — especially higher gasoline prices — could reduce economic growth later this summer. But the bond market’s fear of a slowdown seems exaggerated. Could the economy and the surging labor market really sputter with ten year Treasury yields below 1.4 percent?
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