The Logjam is Breaking as Congress Enters Home Stretch

by Greg Valliere, AGF Management Ltd.

SIGNS OF PROGRESS: Exhausted members of Congress have made their points and now have a clear goal: get out of town before Christmas, which looks increasingly likely despite huge issues to resolve. Here’s our take:

HOUSE DEMOCRATS have a good chance of passing the $1.75 trillion social spending bill by this weekend. They’re waiting for an official “score” from the Congressional Budget Office, which should come by Friday. By early next week a House version of the bill will be sent to the Senate.

THE SENATE MAY TAKE WEEKS to pass its version of the social spending bill, and Sen. Joe Manchin could kill or delay it. He wants to wait before voting to see if inflation has abated; it won’t any time soon, so it could be late winter — if then — before there’s a final agreement with the House.

MEANWHILE, CONGRESS MAY PASS A DEFENSE SPENDING BILL before next week’s Thanksgiving recess; passage of the measure might slip until early December but this bill is on a fast track, by congressional standards.

NEXT IN LINE is the need to extend the budget “Continuing Resolution” (CR) that has to pass by Dec. 3 to keep the government running. This is a clear candidate for another “kick the can” tactic that will extend the CR until late December or — more likely — sometime later in the winter.

THEN THERE’S THE DEBT CEILING EXTENSION, as the Treasury Department runs out of money by late December or perhaps early 2022 (strong receipts may delay a day of reckoning). In any event, default is unlikely; Chuck Schumer or the Federal Reserve will ensure that the debt ceiling extension doesn’t become a debacle.

OUR BOTTOM LINE is that Congress is determined to leave town before Christmas, and that’s increasingly likely — even if it means crucial issues will have to wait until January or February. We don’t see a fiscal crisis coming, and the markets don’t either.

IN OUR OPINION, there’s only one development that could spook the markets. It’s not inflation, which is baked into assumptions for the next few months. It’s a resurgence of Covid, which has spiked in Europe as cold weather drives people indoors and takes a huge toll on the unvaccinated.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

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This post was first published at the AGF Perspectives Blog.