by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
November 17, 2021
The Upcoming Budget “Score” — and Why It’s Crucial;
Jerome Powell, Twisting in the Wind
November 17, 2021
THE BEAN COUNTERS at the Congressional Budget Office (CBO) are poised to complicate passage of the $2 trillion-plus Build Back Better Act. Surprise — the numbers don’t add up in the pending measure, which could prompt Sen. Joe Manchin to pull the plug.
THE CBO HAS PLEDGED TO UNVEIL its projections this Friday, amid growing speculation that the bill’s proponents have wildly exaggerated their assumptions of new revenues from the Internal Revenue Service. Could the IRS really add $320 billion through tougher enforcement? The real figure could be half that amount, or less.
MOST HOUSE DEMOCRATS SAY they will overlook the CBO report and vote for the measure, possibly by this weekend. Then the drama will intensify: moderate Sen. Manchin has indicated that a poor score — combined with the ongoing inflation threat — could prompt him to vote no. Only one no vote could kill the package in the 50-50 Senate.
MANCHIN HAS THE POWER to scuttle the BBBA — or delay it for many weeks — and we suspect he will demand that the entire package should be paid for. Where Congress can find extra billions is a mystery, despite Biden’s insistence that the package will not add a dime to the deficit. It obviously will.
WHETHER THE BBBA would raise inflation, as Manchin claims, is in dispute. Former Treasury Secretary Lawrence Summers wrote in a Washington Post op-ed yesterday that the inflationary impact of the bill would be negligible.
BUT SUMMERS, AN OUTSPOKEN CRITIC of Biden Administration economic policies, listed several reasons why the Federal Reserve and others have underestimated the inflation threat. Criticism from Summers may be holding up Biden’s decision on whether to re-appoint Jerome Powell as Fed Chairman.
A POWELL SUPPORTER told us yesterday that Biden’s delay could be a sign that he’s not satisfied with Powell’s handling of inflation. “Why is Biden letting Powell twist in the wind?” our source said.
THE DELAY COULD BE A SIGN OF DISAPPROVAL of the Fed’s sanguine — and incorrect — view this past summer on inflation, which has led to enormous public anxiety over rising prices, contributing to a sharp drop in Biden’s job approval rating.
COULD POWELL BE A SCAPEGOAT, leading to his firing? Or could he be a scapegoat who’s useful to keep — and blame? In any event, Biden’s delay is increasingly seen as a vote of no confidence. And that’s ironic, because if Powell leaves, his near-certain successor would be Lael Brainard — who’s just as dovish on monetary policy as the current chairman.
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