by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author:Ā 8
November 16, 2020
AMID A SURGE IN CORONAVIRUS cases, hospitalizations and fatalities, talks have broken down on a stimulus bill. Barring a miracle, nothing will pass until early 2021, even if Joe Biden gets involved in the negotiations.
OPTIMISM THAT BIDEN AND MITCH McCONNELL might reach a deal flies in the face of the deep differences between both sides. House Speaker Nancy Pelosi is hanging tough for a $2.4 trillion package, while most Senate Republicans are reluctant to budge on their call for a $500 billion deal. Thatās a very wide gap.
MANY REPUBLICANS BELIEVE THE ECONOMY IS HEALING, with unemployment now at 6.9%. But unemployment benefits in many states expire on Jan. 1, and the economy could soften as several states impose partial shutdowns.
BIDEN NEEDS TO SPEND HIS POLITICAL CAPITAL CAREFULLY: Democrats have significantly less power in the House, and the Georgia Senate runoffs on Jan. 5 could certify McConnellās leadership of the Senate. Biden has a chance to get a stimulus bill passed after his Jan. 20 inauguration, but he might need to woo a handful of Republicans like Susan Collins to get even a $1 trillion bill.
PELOSI HAD A CHANCE to get a $1.8 trillion deal earlier this fall from Treasury
Secretary Steve Mnuchin, but that train has left the station; she wouldnāt take yes
for an answer.
SO THE BEST BET is probably a āskinnyā bill that doesnāt win enactment until February, which persuades us that this will be a difficult winter. First quarter economic growth will be soft ā before a vaccine changes everything by April and May.
MEANWHILE, THERE WILL BE A LESSON LEARNED from this pandemic bill ā Joe Biden will have difficulty getting much done. McConnell is an unabashed obstructionist, and the Democrats wonāt be as powerful in the House and Senate as they anticipated just a month ago. Biden will have to compromise, which will prompt scathing criticism from the partyās Progressives.
* * * * * *
JUDY SHELTON IS CLOSE to Senate confirmation to become a Federal Reserve governor; a Senate floor vote is scheduled for this week. Her views on monetary policy are controversial ā she favors light regulation and a return to the gold standard.
BUT SHELTON WOULD BE JUST ONE OF SEVEN GOVERNORS and 12 regional bank presidents, so her influence would be modest; maybe adding a contrarian like her would actually be healthy. The bottom line, as Randy Forsyth wrote last week in Barrons, is that āher impact on policy would likely be limited to casting lonely dissents.ā
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