by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
IN A COMPLICATED LEGISLATIVE DISPUTE, a relatively modest Covid aid bill has stalled, perhaps for weeks, because of renewed friction in Congress over illegal immigration. This maneuvering seems trivial, frankly, in light of the carnage in Ukraine, but it sets the tone for Congress for the rest of this session.
BOTH PARTIES ARE FURIOUSLY POSTURING ahead of the fall elections, and the Democrats will have a reason to cheer later today as Ketanji Brown Jackson wins confirmation to the Supreme Court. But Democrats were hoping to enact a Covid bill this week, and that won’t happen.
A $10 BILLION COVID AID BILL — small potatoes in this era of trillion dollar spending deals — is gridlocked as Congress begins a two-week vacation tomorrow (a major priority is a dozen weeks of vacation by early October, which will make it difficult for Congress to address time-consuming issues such as tax hikes).
THE COVID AID BILL would increase funding for treatment, vaccines and testing, which may be necessary in light of an outbreak of variants and a sudden resurgence of the virus here in Washington. Several Cabinet secretaries and members of Congress have been infected in recent days, probably by the new BA.2 variant.
THE COVID BILL STALLED as Republicans demanded a vote to preserve immigration curbs that were imposed by President Trump. GOP lawmakers know the threat of more illegal immigration is a huge election issue for them; even some Democrats who face difficult re-election fights are reluctant to ease the so-called Title 42 restrictions that curb illegal immigration.
[ACTUALLY, the extremely tight labor market, with workers impossible to find, would benefit from looser immigration policies, but that’s another story.]BITTER CONTROVERSIES will dominate Congress for the next few months as members eye the fall elections. Yesterday’s public flogging of oil industry executives in a congressional hearing was a preview of another major theme — whether the industry is guilty of price gouging, despite evidence to the contrary.
ONE OF THE FEW AREAS of agreement will be more spending for the Pentagon — far more than President Biden has proposed — in the wake of war in Ukraine and China’s huge buildup of sophisticated new weapons. More U.S. shipbuilding will be a major priority.
AS FOR OTHER SPENDING, the rate of growth may subside after last year’s blowout, but it would be inaccurate to say that fiscal policy is becoming restrictive; it simply will be less profligate. GOP victories in November may reinforce a trend toward less accommodative spending (except for defense).
COVID, MEANWHILE, HAS NOT BEEN CRUSHED, as the U.S. nears one million fatalities, new variants erupt in Europe, and China confronts a major outbreak. The virus may kill and hospitalize far fewer people than a year ago, but it still lurks, infecting the vulnerable.
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This post was first published at the AGF Perspectives Blog.
