by Greg Valliere, AGF Management Ltd.
Inching Toward a Tax and Spending Deal; The Federal Reserve’s Stock Trading Embarrassment
TRENCH WARFARE: There are two fronts in the war to win passage of a massive social spending bill. Joe Biden indicated yesterday that he’s prepared to get involved in both battles.
THE OVER-RIDING ISSUE is the $3.5 trillion price tag and the inability to credibly pay for it. There’s widespread agreement, even among Democrats, that the bill will get a major haircut. Chuck Schumer and Nancy Pelosi have conceded in private that this social bill will get pared back; Biden knows it.
THE MEDIA HAS FOCUSED on moderate Sen. Joe Manchin, who wants no more than $1.5 trillion, but one other Democrat could scuttle the deal — moderate Sen. Kyrsten Sinema, who was profiled this morning in the Washington Post. She’s very engaged in negotiations but isn’t budging in her opposition to $3.5 trillion.
THE SECOND FRONT, which also may require active intervention by Biden, involves specific proposals that could stall the bill. We’re hearing that a deal can be reached on the state and local tax break, which will get hiked, and there’s a compromise brewing on the assumption of savings on Medicare drug costs.
BUT THERE ARE SEVERAL OTHER ISSUES — estate taxes, tobacco taxes, whether to fully extend the child tax credit, etc. — that will require extensive negotiations, which Biden will join. Our odds haven’t shifted: Chances of a $3.5 trillion bill, zero. Chances of a complete breakdown, 40%. Chances of a deal, with a major haircut, 60%.
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JUST AS THE BIDEN ADMINISTRATION nears a decision on re-appointing Jerome Powell, the Fed Chairman faces a serious ethical issue — some Fed officials are active stock traders.
TWO FED PRESIDENTS, Eric Rosengren of Boston and Robert Kaplan of Dallas, said they would sell their holdings and asserted that their trading complied with Fed rules. If that’s accurate, then there may be a problem with the rules; some of Kaplan’s trades exceeded $1 million in value.
THE APPEARANCE OF A CONFLICT has Sen. Elizabeth Warren shocked — shocked !! — that there’s trading by Fed officials. She has demanded reforms, and now has a stronger case against the present leadership.
THIS CONTROVERSY IS THE LAST THING POWELL needs on his path to a second term. There’s an election next year, so members of Congress — on the left and right — will dig deep into stock trading by Fed officials. Powell has called for an internal investigation, and is still the favorite to get re-nominated, but frankly this is an embarrassment for the Fed and its squeaky-clean image.
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This post was first published at the AGF Perspectives Blog.