President Biden’s fiscal agenda moved closer to enactment when the House of Representatives adopted a FY22 budget resolution containing reconciliation instructions to 13 House committees that lines up carefully with the Senate budget plan. Speaker Nancy Pelosi continues to prove her leadership mettle by quickly bringing together the factions of her caucus behind a plan that has plenty in it for everyone, literally.
The America Rescue Plan, Bipartisan Infrastructure Plan, and America Family Plan are shaping up as the biggest peacetime shot of multi-year stimulus enacted in the same year. The total $5 to $6 trillion will spend out over the coming four years inclusive. With much legislative work still to complete, Bidenomics hopes to generate sustainable organic growth by investing in people, the stuff they use productively, signaling to companies (and markets) that private capital investment could become more rewarding than buybacks and tax engineering.
Strong growth may not heal all, but it provides a backdrop for change. Employee compensation as a share of national income, excluding transfers, was 68% at the end of last year compared to 73% in 1971 (Bureau of Economic Analysis using St. Louis Fed data). Economic inequities show up in measures by race (especially unemployment and housing), education (consumer confidence) and skills attainment (wage growth). Closing these gaps by growing the pie and revising fiscal redistribution policies (including trade) open opportunities for many Americans, demonstrating to voters the attainable benefits of prosperity shared.
Washington’s fiscal schedule is a bit barbell-ish. The FY22 budget resolutions of both bodies instruct committees to report by September 15 legislation fulfilling their assignments. Timing may slip due to holidays and the magnitude of work but not by much. Leaders want committee chairs to finish this task, which is necessary to begin thinking about floor schedules and inevitable negotiations to avoid failure.
Infrastructure is set for House votes no later than September 27. At this point, the timing difference between reconciliation legislation and infrastructure is a distinction without a difference. Although leaders of progressive and moderate House factions spoke about keeping promises after voting for the budget resolution, timing can no longer be viewed as a meaningful fiscal legislative impediment.
On September 30, the FY21 year ends. Unsurprisingly, lawmakers very likely will have to pass one or a few bills (continuing resolutions) to keep the government running. While certainly there will be flash point opportunities, we remain of the view that shutdowns are unlikely. The appropriators have grown re-accustomed to completing their work rather than relying on top-down deals that tended to deplete their influence.
Debt subject to limit headlines will push forward during any slow news cycle and on a more prevalent basis as summer ends. Estimates vary but generally Washington has until the end of October to avert maximum fiscalamity – default. So, while the coming four months will provide plenty of headline volatility, we do not see circumstances allowing fiscal policy to become an economic or political drag. On July 30, Federal Reserve Governor Lael Brainard said September data would clear up summer data noise. Around mid-October the real risk profile of Washington likely will have been revealed as enough votes will have occurred on fiscal policy legislation to indicate whether Bidenomics remains on track or if disappointments become the narrative.
A reassuring aspect of the past month for markets and many Americans is the ability of Washington policy makers to cooperate on addressing decades of underinvestment in human and physical capital. With a few pitfalls still to avoid, congressional Democrats have demonstrated support for President Biden’s economic policy vision. Our expectation is the fiscal process between now and the December holidays will continue to reflect that agenda. We worry less about the debt created over the past six quarters if stabilization leads to enduring growth, with the livable jobs and revenues that come from it.
No one kept a beat better than Mr. Charlie Watts, 80 years of proving classy can be cool. Watts was the only drummer to ever back the Rolling Stones – he was the adhesive binding that crazy creativity. Some of us are fortunate to remember where we first saw BB King, Stevie Ray Vaughan, the Stones and other great musical artists. In late September 1981, the original Astrodome was the venue barely holding together as the Fabulous Thunderbirds (featuring Stevie that night), ZZ Top (Dusty Hill rip), and Charlie’s band. Mr. Watts, known to be a sharp dressed man and a jazz aficionado, passed yesterday from the physical world. Rocking blues will always be better for his time behind the kit.
