by Greg Valliere, AGF Management Ltd.
UNEMPLOYMENT BENEFITS are likely to shrink â still another body blow for an economy thatâs weakening as Covid-19 ravages the Sunbelt.
NEGOTIATORS SEEM UTTERLY INCAPABLE of making even minimal progress; perhaps theyâll get a wake-up call from weak economic data â second quarter GDP today, which should be horrible; unemployment next Friday, expected to be soft.
THE FOUR SCENARIOS:
1. Fearing an angry voter backlash, negotiators work overtime and produce a deal by this weekend, which would allow unemployment benefits to continue. Chances: very unlikely.
2. The talks drag well into August, with Congress delaying its Aug. 7 recess and producing a $1.5 trillion bill that puts unemployment benefits on a downward sliding scale, gives some liability protection, aid to state and local governments, $1,200 checks to individuals, more money for small business, and aid for schools. Chances: still the best bet.
3. The talks break down, with no deal in August amid growing market concerns: Chances: canât rule this out.
4. A short-term extension passes in the next 48 hours, continuing unemployment benefits (at a lower dollar amount) but not much else. No one likes this approach, because it would reduce pressure to get the rest of the deal done. Chances: Unlikely, but âkick the canâ is always the easiest option in this town.
THIS IS WASHINGTON AT ITS WORST: Itâs all about non-negotiable demands, cynical political calculations, and consulting the opinion polls. The big losers will be millions of Americans who face evictions and bankruptcies.
IF THEREâS NO DEAL, THE RISKS ARE CLEAR: An economic slump would become inevitable, dashing hopes for a decent third quarter. And there would be a fierce voter backlash against incumbents; failure to get a deal would be particularly disastrous for the bickering Republicans â who are on a path toward a tidal wave.
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This post was first published at the AGF Perspectives Blog.
