by Greg Valliere, AGF Management Ltd.
THE MOST IMPORTANT QUESTION IN WASHINGTON is always “do you have the votes?” Without the votes, there’s no election reform, no gun control, no police reform, etc. And it now appears that supporters of the $1.2 trillion infrastructure bill may not have the votes to pass a bipartisan bill.
IT’S ONLY JULY 14, with at least three weeks left before the Senate leaves town, but the infrastructure bill is encountering fierce resistance from Republicans. It will require at least 10 GOP Senators to support the infrastructure bill, and one controversial revenue-raiser — giving the IRS an extra $40 billion to pay for tougher enforcement — could kill the entire package.
ANTI-TAX CRUSADER GROVER NORQUIST is back in the limelight, urging Republicans to oppose the bill — and some are wavering. So what’s plan B? Many Democrats are prepared to simply assert that the infrastructure bill will improve economic growth; they might not include explicit “pay-fors.” Whether the Congressional Budget Office would accept such fuzzy math is unclear.
IS THERE A PLAN C?: Some lawmakers would simply combine the first and second infrastructure bills, plus some tax hikes, into one huge package that could move with only 50 Senate votes — all Democrats — under the budget reconciliation process. That would take time; it’s increasingly likely that this mess may not get resolved until well into the second half.
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YESTERDAY’S CPI REPORT had some flukes — used car prices, for example — but we don’t share the White House view that inflation is peaking. It may be for some commodities and for goods caught in the supply pipeline, but two concerns may linger, even as year-over-year comparisons start to look less worrisome:
CONSUMER PSYCHOLOGY: Quite clearly, surveys show that consumers expect higher inflation. Why not buy a product now rather than next month, when it could cost more? Inflation expectations may become a self-fulfilling prophecy as the media hypes an inflation scare.
THE LABOR MARKET: We expect strong non-farm payroll reports for the next few months, with the unemployment rate headed to nearly 5% by year-end. Companies are still offering signing bonuses and higher wages, but labor shortages are likely to persist –and higher wages and benefits will get passed along to customers.
THE POSSIBILITY THAT HIGHER INFLATION will persist into 2022, an election year, clearly worries the White House as Republicans ratchet up criticism of “Bidenflation.” Politico’s Ben White reports this morning that there’s anxiety among Biden insiders that Larry Summers may have been correct in warning of an inflationary surge.
SUMMERS VISITED WITH BIDEN ECONOMIC ADVISERS at the White House yesterday. We think he was pointed in his criticism of Fed Chairman Jerome Powell, who may have to fight for his job, starting with testimony before Congress today.
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This post was first published at the AGF Perspectives Blog.
